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Published On: February 21, 2020 | Blog | 0 comments

Should we keep our nil rate band will trusts?

The introduction of the Transferable Nil Rate Band (TNRB) applying where the second spouse died on or after 9th October 2007, was heralded by the Government as “doubling” the Inheritance Tax threshold for married couples and civil partners and as though Nil Rate Band Trusts were no longer of any value in their wills.

For many couples, the TNRB has indeed made life a lot simpler even if the Nil Rate Band (NRB) itself has remained at £325,000 since 2009. There are no complex trusts, no continuing professional costs and no burden on the family to act as trustees themselves. The surviving spouse simply inherits everything and then leaves it to the ultimate beneficiaries, but with the benefit of two NRBs calculated at the rate applying on the second death.

Now that we also have the Residential Nil Rate Band and, with it, the Transferable Nil Rate Band, there may seem even more of a reason to dispense with NRB Will Trusts.

But, if there are undoubted advantages, there are also disadvantages, especially for second marriages.

For a start the TNRB is not a “stand alone” relief; it is only available to increase the survivor’s NRB “for the purposes of the charge to tax on the death of the survivor”. In other words, not all taxable transfers are covered:

  1. The TNRB applies to the survivor’s deemed transfer on death, it has no application to any lifetime transfers which are themselves taxable, including any trust that the survivor wishes to set up
  2. Failed PETs (gifts which the survivor has made but then failed to survive by seven years) and Gifts With Reservation (property given away in which the survivor has retained a benefit) are covered by the TNRB (because they fall within the charge made on the second death) but care has to be taken about all other gifts or transfers during the life of the survivor
  3. If the survivor’s will itself creates a trust, perhaps for grandchildren, then the TNRB can still apply to the survivor’s own estate on death but the relief stops there. The trust itself has only one NRB and future charges on the trust will be calculated in the normal way.

Trusts have been used to mitigate tax but few trusts are set up purely for fiscal reasons and here, too, the NRB Trust has its advantages over the TNRB.

  1. The NRB trust identifies beneficiaries from the start; they will remain beneficiaries regardless of whatever changes the surviving spouse has in mind. For second marriages, this can be particularly important
  2. The NRB trust comes into existence when assets are transferred into it after the first death; assets likely to go up in value faster than the NRB then start to do so much earlier, outside the taxable estate of the survivor and for the benefit of other family members
  3. TNRB relief is not automatic anyway. It must be claimed within two years of the survivor’s death and the personal representatives must do this, not the beneficiaries. For many non-tax reasons, the estate may remain unadministered for long enough that the personal representatives are out of time to claim the relief, leading to possible claims against them
  4. There can only be one TNRB per surviving spouse. For second marriages, it may be better to set up a NRB trust on the first death and carry forward an earlier TNRB against the estate of whoever is the survivor of that second marriage.

Each situation needs to be considered on its merits and there may be other factors.   It is always worth revising your will if you have not done so in the last five years.

For further information, please contact Christopher McNeill (e-mail:

*Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

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