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A formula in IHTA84/S8A(2) is used to determine whether a person has unused nil rate band on death. A person has unused nil rate band where M is greater than VT.

M is the maximum that could be transferred on the first death at nil percent.聽 It is therefore

• the nil rate band that applied at the first death
• less the chargeable value of any lifetime transfers that use up the nil rate band first.

VT is the chargeable value of the transfer on death. This is the total of

• the chargeable value of non exempt or partially relievable legacies passing under the Will or intestacy,
• assets passing by survivorship,
• gifts with reservation chargeable at death
• and any assets held in trust which formed part of the deceased鈥檚 estate.聽

Where M is greater than VT the amount by which it is greater is expressed as a percentage of the nil rate band available on the first death. That percentage is the amount by which the nil rate band on the second death is increased. Where necessary, you should always take the percentage to four decimal places.

Example

John and Linda were married in 1965. John died on 22 October 2002 and Linda died on 10 March 2008.

When he died, John鈥檚 estate was worth 拢400,000. He left legacies to his children of 拢100,000 and the residue (拢300,000) to Linda. 聽

Unused nil rate band calculation

Applying the formula above

the nil rate band at the date of death was 拢250,000 and there are no chargeable lifetime transfers to deduct.聽 So, M is 拢250,000.

there are chargeable legacies of 拢100,000 but no other aggregable property, so* *VT is 拢100,000.

• So, M is greater than VT by 拢150,000.聽

Transferable nil rate band calculation

• The amount of the nil rate band available to transfer from the first death is expressed as percentage being E 梅 NRBMD 脳 100 where
• E is the amount by which M is greater than VT.
• NRBMD is the single nil rate band maximum at the first death.

So E is 拢250,000 - 拢100,000 = 拢150,000.

The percentage of nil rate band available to transfer is

(150,000 梅 250,000) 脳 100 = 60.0000%

At the date of Linda鈥檚 death the nil rate band was 拢300,000. This will be increased by the amount available to transfer

拢300,000 + (拢300,000 X 60%) = 拢480,000

So the total nil rate band on Linda鈥檚 death will be 拢480,000.

Using the same example, if

• the chargeable legacies had been 拢300,000
• M would be 拢250,000 and* *VT 拢300,000.

So, as M is not greater than VT there would be no nil rate band available to transfer on Linda鈥檚 death.