Nil Rate Band Legacy in a Will: How an NRB Gift Reduces Inheritance Tax
A nil rate band legacy gifts the full NRB (£325,000) to children on first death — free of IHT — with the balance to the surviving spouse. The transferable NRB (2007) has overtaken this for most couples, but it remains relevant for cohabiting partners and larger estates.
Worked Example: NRB Legacy on First Death
Since 2007, the TNRB means the unused NRB from first death can alternatively be transferred to the survivor — making an NRB legacy unnecessary for most standard estates.
Frequently Asked Questions
What is a nil rate band legacy and how does it work?
A nil rate band (NRB) legacy is a specific cash legacy in a will for exactly the amount of the deceased's available nil rate band — currently £325,000. The gift goes to children (or other non-exempt beneficiaries), not to the surviving spouse. Because the gift is exactly equal to the NRB, it attracts no IHT (the NRB is the tax-free threshold). The remainder of the estate passes to the surviving spouse under the unlimited spouse exemption — also free of IHT. The result: on the first death, the full NRB is used up by the legacy to children, and the surviving spouse gets the rest with their own NRB still intact for their own estate. Before the transferable nil rate band was introduced in October 2007, this was the main way married couples used both NRBs.
Has the transferable nil rate band (TNRB) made NRB legacies obsolete?
For most married couples and civil partners, yes — the transferable nil rate band (TNRB) introduced by the Finance Act 2008 (s8A IHTA 1984) largely replaces NRB legacies. Under TNRB, when the surviving spouse or civil partner dies, any unused NRB from the first death is transferred and added to their own NRB — effectively giving the survivor's estate a double NRB of £650,000 (or up to £1,000,000 with the residence nil rate band). This means leaving everything to the surviving spouse no longer wastes the first deceased's NRB. However, NRB legacies remain relevant in some situations: (1) where the couple are unmarried (TNRB does not apply — cohabiting partners have no transferable NRB); (2) where the surviving spouse is non-UK domiciled (the NRB legacy can use the first deceased's NRB while the non-dom spouse receives the balance exempt); (3) where the estate is very large and using both NRBs on first death is still part of the planning strategy.
What is the difference between a nil rate band legacy and a nil rate band discretionary trust?
A nil rate band legacy is a straightforward cash gift in the will — 'I give a sum equal to my available nil rate band to my children in equal shares.' The children receive the money outright. An NRB discretionary trust is a will trust under which the NRB-sized sum is held by trustees with discretion to distribute among a class of beneficiaries (typically spouse, children, grandchildren). The trust approach was popular before TNRB because assets in the trust did not form part of the surviving spouse's estate — protecting against care home fees, remarriage, and the survivor's own IHT. Since TNRB (2007), NRB discretionary trusts created on first death no longer serve their original IHT purpose for most couples — because the TNRB allows the unused NRB to be transferred anyway. Many existing NRB discretionary trusts set up before 2007 have been wound up.
Does an NRB legacy affect the residence nil rate band?
Potentially yes. An NRB legacy given to children as a direct cash gift does not itself reduce the residence nil rate band (RNRB) — the RNRB applies to the residential property passing to direct descendants, which is a separate calculation. However, if an NRB legacy is structured in a way that leaves the residential property to someone other than a direct descendant (for example, to the surviving spouse who then leaves it to stepchildren who are not the children of the first deceased), the RNRB may not be available on the survivor's death. Planning the NRB legacy alongside RNRB entitlement requires careful structuring — particularly for blended families or where the survivor may remarry.
When should married couples still consider an NRB legacy?
An NRB legacy remains worth considering in limited circumstances: (1) The couple are cohabiting rather than married — TNRB does not apply, so each partner must use their own NRB on death; (2) Very large estates where even with TNRB there is significant IHT — using the first death's NRB on immediate gifts to children reduces the eventual survivor's estate; (3) Non-UK domiciled surviving spouse — the exemption for assets passing to a non-dom spouse is capped, so an NRB legacy may be appropriate; (4) The deceased's NRB has been partially used by lifetime gifts — the legacy can be limited to the available (unused) NRB rather than the full NRB. For most standard married-couple estates below £1,000,000, the TNRB makes NRB legacies unnecessary — but larger estates or non-standard situations still benefit from the technique.
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