Transferring an unused Inheritance Tax allowance: follow the percentage

When a spouse or civil partner dies, an unused part of their basic Inheritance Tax nil-rate band may be available for the survivor's estate. The transferred amount is based on the unused percentage, not simply a cash figure left on an old estate account.

This distinction matters when the first death occurred under a different threshold. It also explains why finding the earlier estate records can be more useful than assuming that a married couple always has twice the current allowance.

Start with the first estate's actual use

The question is how much of the basic nil-rate band was used when the first person died. Gifts, non-exempt legacies and the circumstances of that estate can affect the answer. A large estate does not necessarily use the band, while a smaller one can use some of it.

HMRC's transfer guidance explains the percentage method and the requirement for a marriage or civil partnership at the first death. An unmarried relationship does not qualify through this route simply because it lasted many years.

Ask for the earlier tax calculation, not just a note that “no tax was paid”. No liability does not prove that the whole band was unused.

Calculate the percentage using the earlier threshold

Consider a simplified historical example where the applicable band at the first death was £300,000. Assume £75,000 used that band and no other amounts affected its use.

The used proportion is £75,000 divided by £300,000: 25%. The unused proportion is therefore 75%. That percentage is the starting point for the potential transfer.

If the survivor later dies when the basic band is £325,000, 75% of that later figure is £243,750. Adding the survivor's own £325,000 gives a potential combined basic band of £568,750, subject to the claim and the survivor's circumstances.

Carrying forward only the old £225,000 unused cash amount would give a different result. The illustration explains the method; it does not establish eligibility for an actual estate or forecast future thresholds.

Keep residence allowance outside this calculation

The residence nil-rate band has its own eligibility and transfer rules. It should not be added to the basic percentage calculation as if the two were one undifferentiated allowance.

HMRC's residence-band guidance describes how estate-size tapering can affect the amount available for transfer, including at the first death. A home allowance may therefore need a separate evidence file.

An executor's summary can show four lines: the survivor's basic band, transferred basic band, survivor's qualifying residence band and transferred residence band. Put supporting calculations behind each line rather than starting with a presumed £1 million total.

Reconstruct missing information carefully

Older records may be held by a former solicitor, executor or family member. Useful documents can include the will, grant, estate accounts, tax forms, relevant gift records and valuations.

If a document cannot be found, record the gap and ask the estate adviser what alternative evidence is acceptable. Avoid turning an uncertain family recollection into a precise percentage without explanation.

For example, knowing that the surviving spouse received “most of the estate” does not establish whether a cash legacy to someone else used 10%, 30% or all of the earlier basic band. The size and treatment of that legacy need to be reconstructed.

Check the claim process and deadline

HMRC describes a normal two-year claim period following the survivor's death. The required process depends on the estate and reporting route. Arrange the claim as part of administration rather than assuming the allowance transfers automatically in every practical sense.

Where there has been more than one marriage or civil partnership, or an earlier estate had unusual arrangements, obtain a calculation specific to those facts. Do not add every past spouse's maximum allowance without checking the statutory limits.

Give the professional adviser a chronology of marriages, deaths, gifts and estate distributions. Dates help identify which rules and thresholds belong to which event.

Use the result as one part of the estate plan

The available band is not an asset that pays the estate's bills. A family may still need liquidity for debts, administration and any tax due. Similarly, an estimated allowance does not determine who is legally entitled to inherit.

Keep the tax calculation alongside the will, asset ownership and cashflow plan. Revisit it when those facts change rather than repeatedly copying an old summary into new financial projections.

Related reading covers inheritance tax advice, planning after bereavement and the respective roles of advisers and solicitors. Good records make the percentage explainable to both the family and the person administering the later estate.