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Remarried? Don’t lose your nil rate band inheritance tax

If you are a widow or widower and have remarried, tax relief could save you an additional £130,000.

Couple holding hands signifying second marriage after bereavement.

With the nil rate band for inheritance tax frozen at £325,000 until 2026 at the earliest, it is important to maximise inheritance tax reliefs where you can.

If you are a widow or widower and have remarried, there is an inheritance tax relief that it is important not to overlook. This is the nil rate band from your first spouse – with the nil rate band at £325,000, this could save an additional £130,000 in inheritance tax.

It is best explained through a case study:

  • John was married to Jane and had two children. Jane sadly died in 2015 and her will left everything to John. As they were married, Jane’s estate passed inheritance tax free to John due to the spouse exemption.
  • This meant, at that time, John’s estate has the benefit of his nil rate band and Jane’s, which gave him £650,000 inheritance tax free.
  • A few years later John remarried – to Jo and they have a daughter together. Upon marriage, John and Jo put new wills in place, leaving everything to each other and if they both died to the three children. As a couple, this gave them two nil rate bands before the children inherit, so £650,000. All pretty standard stuff.
  • However, by putting these straightforward wills in place, it means they have lost out on Jane’s nil rate band, which could potentially save their joint estates £130,000 in inheritance tax.

Generally, the law only allows couples two nil rate bands as a maximum, but in this specific situation it is possible to have three. Importantly, however, the relief isn’t automatic and needs to be structured into John’s will and therefore it is important to get the correct advice.

John would need to re-draft his will to include a legacy equal to Jane’s nil rate band to the children, either via an outright gift, or via a trust. This will then mean that between Jo and John, they will have the benefit of three nil rate bands (currently £975,000), rather than two.

If you would like any estate planning advice, contact our Private Client team who will be happy to help.

In November we are offering will writing in exchange for a donation to our supported charity Shawmind, so by arranging your will, you will also be benefitting others. Make your appointment by calling us on 020 8944 5290.

This article was written by Katherine Carroll

Please note the contents contained in this article are for general guidance only and reflection the position at time of posting. Legal advice should be sought before taking action in relation to specific matters.

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