The Inheritance Tax Trick You Might Be Missing
Peter McGahan
Monday 11th August, 2025.
IF there’s a subject more likely to turn off your dinner table conversation than inheritance tax (IHT), I haven’t found it yet (politicians aside). That is until you realise just how much money you could lose - or better, save, simply by understanding one thing: the transferable nil rate band.
Stick with me - it might just be the key to saving your family tens of thousands of pounds in unnecessary tax.
So, what is the transferable nil rate band?
Let’s start at the beginning. Everyone has a nil rate band - the chunk of your estate (currently £325,000 for 2025/26 and frozen until 2029/30) that’s exempt from inheritance tax. If your estate is worth more than that, HMRC starts sniffing around for its 40 per cent cut.
But here's where it gets interesting: married couples and civil partners can transfer any unused portion of their nil rate band to each other. So, if your spouse dies and leaves everything to you - completely inheritance tax-free thanks to spousal exemption - their entire nil rate band goes unused. When you pass away, your estate can potentially benefit from both nil rate bands, giving you £650,000 of tax-free estate.
Does it matter when they died?
Yes, timing matters. This transfer only applies if the second death happened on or after October 9, 2007. But it doesn’t matter how long ago the first death occurred - good news for those whose spouse passed away in the 1980s, but didn’t trigger a tax bill back then.
It’s not about how much they left to you, it’s about what they didn’t use.
Even if your late partner’s estate was small - say £100,000 - if it all came to you, their nil rate band wasn’t used. That’s 100 per cent available to you later. It’s not about what they had; it’s about what wasn’t taxed.
The math here is proportionate. If they used up half their nil rate band, only 50 per cent is left to transfer. The percentage is applied to the nil rate band in force when you die, not when they did. So, if their unused 50 per cent is applied to your £325,000 band, your estate gets an extra £162,500 in exemption.
Now, here’s where people often trip up. When you die, your executors must claim this transferred band. That’s not automatic. They’ll need to fill in forms, produce your marriage certificate, your partner’s will (if there was one), and some very precise figures showing how much of the nil rate band was actually unused. If the paperwork is lost or forgotten in a drawer somewhere between the will, a load of pens and the takeaway menus, your estate might miss out.
Even if you think your estate won’t breach a single nil rate band, things change - property prices rise, you win a postcode lottery, or you find a load of money in some old trousers. Always calculate the unused nil rate band when the first spouse dies and store that information safely. That way, your partner’s executors have everything they need to make a claim.
If you’re already the surviving spouse and thinking, “Oops, I’ve got none of that,” don’t panic. Documents like wills and death certificates can often be recovered from public records. Your executors can still make a claim, just act within 24 months of the second death.
Oh, and yes, the residence nil rate band is transferable too.
That’s an extra exemption if you’re leaving your home to direct descendants. But if your estate tops £2million, you’ll start losing that perk. So again, planning is the name of the game.
This isn’t just about tax. It’s about keeping more of what you’ve worked for in the hands of the people you love, rather than writing a cheque to HMRC because of missing paperwork or missed opportunities.
Speak to your solicitor or an independent financial adviser, get your paperwork in order, and treat the transferable nil rate band as the gift it is - a rare win in the complex, often unforgiving world of inheritance tax.
Because when the time comes, your family will have enough to handle without also handing over a cheque they didn’t need to write.
If you have an inheritance tax query, please call 01872 222422 or email info@wwfp.net
Peter McGahan is the Chief Executive Officer of independent financial advisers Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.
