The recent Inheritance Tax (IHT) change which allows the transfer of ‘unused’ nil rate bands from spouse to spouse or from civil partner to civil partner has been generally welcomed, but it has caused some consternation as determining the ‘old’ nil rate band that applied on the first death can be tricky.

It is widely thought that the balance of the allowance available is based on the current allowance but, in reality, it is based on the proportion of the allowance that was unused in the tax year during which the first death occurred. Therefore, to work out the available amount of nil rate band which can be offset on the second death, it is necessary to know both the value of the estate transferred on the first death and the amount of the nil rate band for that year. The available allowance on the second death is the deceased’s own allowance plus the unused percentage of that of the first spouse times the allowance in the year of the second death.

In an attempt to make the calculations easier, HM Revenue and Customs (HMRC) have published nil rate band tables for IHT and for its predecessor taxes (Estate Duty and Capital Transfer Tax), for all years from August 1914 to date.

HMRC have also published on their website further guidance, in the form of frequently asked questions, about the transfer of the nil rate band: see the ‘What’s New’ pages of HMRC’s website at http://www.hmrc.gov.uk/cto/iht/whatsnew.htm.