CHARLES COOPER REVIEWS THE CONSEQUENCES FOR NIL-RATE BAND LEGACIES OF THE NEW RESIDENCE NIL-RATE BAND FOR INHERITANCE TAX
Since 09 October 2007 it has been possible to claim, on their death, the unused Inheritance Tax Nil-Rate Band (‘NRB’) of their spouse or civil partner who died before them. This is often referred to as the ‘Transferable Nil-Rate Band’ or ‘TNRB’. By 2014, the Court of Appeal had been asked to consider whether the wording of a so-called ‘Nil-Rate Band Legacy’ should properly include the TNRB as well. The case was Loring v Woodland Trust  EWCA Civ 1314.
In that case, the relevant part of the NRB legacy read:
‘MY TRUSTEES shall set aside out of my residuary estate assets or cash of an aggregate value equal to such sum as is at the date of my death the amount of my unused nil-rate band for inheritance tax and to hold the same for such of the following…’
The Court of Appeal upheld the first instance decision that the legacy should be calculated so as to include both the unused NRB and the TNRB, even though the legislation had been introduced after execution of the will. Particular reference was made to the wording of s.8A Inheritance Tax Act 1984 as applying to increase the NRB rather than being a separate, additional, NRB.
HMRC has criticised the decision in Loring, in their Inheritance Tax Manual at IHTM43065, on the basis that the clause uses the specific words ‘the amount of my unused nil-rate band’.
From 06 April 2017, however, there is now an additional ‘Residence Nil-Rate Band’ and a ‘Transferable Residence Nil-Rate Band’ to contend with, the legislation for which is set out at ss.8D-8M Inheritance Tax Act 1984. Now, more than ever, caution is advised when drafting or interpreting NRB legacies within a will.
[Charles practised as a Solicitor and Higher Court Advocate before being called to the Bar, and specialises in tax, trusts, wills and probate.]