Transferable nil rate band?

X died in 1981 whilst living in Switzerland with his wife, Y. The family are not aware if he ever intended to live again in the UK but had done previously. As far as the family are aware he left a letter rather than a properly executed Will leaving all his estate to his wife. One son who has since died. They do not have any figures relating to the value of the estate. The wife Y has now died, domiciled in the UK for the past 25 years. My question is can we claim an unused nil rate band for X on an IHT402 in relation to Y’s death thereby giving an allowance of £650,000. Thank you
Anne Duguid
LGP Solicitors

You need to establish whether X used his nil rate band, either by the transfer of his estate on death or by lifetime gifts within 7 years. If we assume there were no lifetime gifts the question is whether the death transfer was exempt from IHT or below the nil rate band. If Y was UK domiciled at the time of X’s death and the whole of X’s estate passed to her then it would be exempt and his NRB is available to transfer. It doesn’t matter if X was non UK domiciled, but a problem might arise if X was UK domiciled but Y was not at the time of X’s death because the transfer to Y might not then be exempt. In that case you would need to establish the value of X’s estate.

The lack of a valid Will might also cause a problem if, for example, Y was not in fact entitled to receive the whole of X’s estate, but it was given to her by those who were entitled.

In my experience if you can put together a reasonable case for arguing that the NRB is available, even if you don’t necessarily have proof in the form of a Will etc. then HMRC will accept the claim to transfer.

Diana Smart
Gordons LLP

You should check whether X’s ‘letter’ was a valid holograph will under Swiss law. (I have no idea if it was valid, but you can have a holograph will in Switzerland.) If it was, then you proceed down that route. If not, then the relevant intestacy rules apply, depending where his assets were situated on his death.

You will also need to determine where he was domiciled at death, as this will indicate which jurisdiction’s assets ‘count’ for the purpose of evaluating the extent to which the NRB was used.

If X had not used/ fully used his NRB (because the will was valid/estate under the statutory gift value etc) then that NRB should be transferable. If there was an intestacy, then X may have used part of his NRB if the value of the UK assets was over the statutory legacy to the spouse Y. If he was domiciled in Switzerland, you will need to check if the reserved portion (Pflichtteil) is applicable in respect of the children.

The facts are a bit thin to say much more, I fear.

Jill MacMahon
Thackray Williams LLP

Regardless of the domicile (whether actual or deemed) or date of death of the first to die, if they have not fully used their UK IHT nil rate band the unused portion (whether all or only a proportion) is available to the survivor.

I note the question states X was, at one time, domiciled within the UK and that his widow has been domiciled within the UK for the past 25 years (which takes us back only to 1991). If there is potential that X had (or was deemed to have) a domicile within the UK at the time of his death, and his wife was domiciled outside of the UK at that time, spouse exemption will have been restricted and his nil rate band used, at least in part.

With regard to the disposal of his estate to his widow, my understanding is that Swiss Law recognises as valid will, a document hand written and signed by an individual, provided that it is done whilst in Switzerland, or by a Swiss National anywhere. It may therefore be that the letter is a valid will under Swiss Law. However, the circumstances in which the document came about might also be relevant to its validity and it may be appropriate for a Swiss lawyer to advise. I am not sure if cantons have individual laws relating to the validity of testamentary documents.

Paul Saunders

You may first need to check whether the letter is not in fact an “olographe” will, which could be formally valid if handwritten and unwitnessed, and whether such a will would be formally valid in Switzerland.

I will not go into the details and ramifications here, saving to say that the jurisdictional concepts of residence and domicile here will need careful attention, as were he resident in Switzerland he might be domiciled there under the Swiss definition of that term.

Peter Harris

Thank you. It seems that the Will was made in Switzerland but in any event X did not have any assets in the UK at the time of his death - does that mean he wouldn’t have a NRB anyway and therefore we can only use Y’s own £325,000 now and there is nothing to transfer from X?
Anne Duguid
LGP Solicitors

If all the assets did pass to Y (wife) validly under a holograph will or intestacy then the transfer would have been exempt and the entire NRB will be available for transfer. As Paul Saunders points out, the only lacuna would be if (when X died) X had a UK domicile but Y had a foreign domicile. This is unlikely if they were both of UK origin and moved out there together.

If you discover that the “letter” was not in fact a will of any kind, the children had a share of the estate and had in effect waived their interest in favour of their mother, then you need to consider whether X had acquired a domicile of choice in Switzerland by 1981. If he did, and his assets were all outside of the UK, then his assets would have all been excluded property and again his full NRB would be available for transfer. If not, then part of his NRB would have been absorbed on his death.

Bear in mind (1) deemed domicile - if he had been UK domiciled at any time with the three years preceding his death and (2) the possible need to consider gifts made by X within 10 years of his death under CTT (Don’t take my word for it - I was 10 when it was abolished) .

Andrew Goodman
Osborne Clarke LLP

Thank you.
The family believe that X did not own any assets in the UK. The Will was made in Switzerland. If he had Swiss domicile does that mean he would not have a NRB in these circumstances and therefore we can only use Y’s own NRB of £325K now she has died?

Anne Duguid
LGP Solicitors

It does not matter that X had no UK assets. The relevant point is whether any part of his nil rate band was used. Clearly if he was not domiciled in the UK and had no UK assets, he will not have used any part of his NRB. I have claimed several transferable nil rate bands in estates of non-domiciled surviving spouses whose deceased non-domiciled spouse had no UK assets.

Cliona O’Tuama

The basic concept of the IHTA is that it seeks to charge IHT on chargeable transfers made by everybody in the world. The matter of a person’s domicile at death then comes into play. For a person domiciled outside the UK, that removes the value of assets outside the UK (as excluded assets) from the equation. Any remaining value is then taxed in the usual way with the first £325K taxed at 0% and the balance at 40%.

We still have not been told X’s domicile at death.

If he was domiciled in Switzerland and had no UK assets, then his NRB cannot have been used and is available for transfer.

If he was still domiciled in the UK, then his worldwide estate is chargeable to IHT. However, as previous contributors have said, if his Swiss “Will” is valid to pass the Swiss assets to Y, then his NRB will still not have been used and will be available for transfer.

Graeme Lindop
Coles Miller Solicitors LLP

No, everybody has a nil rate band and it sounds as though X did not use his (so it will be transferable).

Given there were no UK assets, it could only have been used if:

(a) he was domiciled or deemed domiciled in the UK in 1981; and
(b) either:

  (i) he made gifts in the preceding 10 years to persons other than his wife which absorbed part of the NRB;
  (ii) part of the estate actually passed to the children; or
  (iii) his wife was not UK domiciled or deemed domiciled in 1981 so the spouse exemption was limited.

Andrew Goodman
Osborne Clarke LLP

The family believe both X & Y had Swiss domicile when he, (X) died. Spouse Y moved to the UK a year after X died and lived here until she died.

Therefore my understanding is that we can claim a whole NRB of £325K for X now as well as Y’s own?

We don’t have any paperwork (copy Will etc) relating to X’s death but will do our best to make the claim.

Anne Duguid
LGP Solicitors

Yes, plus if X was non-dom and there were no UK assets, the will should be irrelevant (which doesn’t of course stop HMRC asking for it!).

Andrew Goodman
Osborne Clarke LLP