Inheritance Tax 

NRB rules 'putting advisers at risk'

NRB rules 'putting advisers at risk'

Confusion about rules surrounding the transferable nil rate band (NRB) is putting advisers and their clients at financial risk, according to Canada Life.

In recent research the life insurer found a mere 7 per cent of advisers knew when to correctly apply the transferable NRB after the death of a partner or spouse.

It found two-thirds of advisers believed the transferable NRB could be used for lifetime gifting, with a further quarter (27 per cent) saying they were unsure how it worked.

The survey was conducted in August 2018 and received responses from 227 professional advisers.

The provider warned under inheritance tax rules a client using the transferable NRB for lifetime gifting could incur an immediate inheritance tax charge of up to £65,000, which could open up advisers to a serious liability issue.

A transferable nil rate band arises when a spouse or civil partner dies and the amount of their IHT chargeable estate does not use up all of the nil rate band they are entitled to.

From October 2007, it has been possible to transfer any such unused percentage to the surviving spouse or civil partner, providing certain conditions have been met.

Neil Jones, market development manager at Canada Life, said: "The inheritance tax rules can be complicated and there are some common misconceptions which, if advisers aren’t careful, could get them in hot water."

He explained the unused part of the NRB could only be transferred to the estate of the surviving spouse or civil partner when the survivor passes away; it cannot be used by the survivor for their lifetime gifting.

The analysis also showed when it came to re-using the lifetime gifting NRB threshold of £325,000 every seven years, more than one in 10 advisers were either unsure or not aware of how cumulative gifting operates.

Canada Life warned with more estates being subject to inheritance tax each year it was important people sought advice on how to reduce the amount payable.

Mr Jones said: "It’s little wonder that this is a difficult area for advisers—the NRB and the residence nil rate band rules are, at times, deeply confusing. The government needs to demystify the NRB and especially the residence NRB."

Chancellor Philip Hammond wrote to the Office of Tax Simplification in January to request a review of the IHT regime.

The first part of the review, which is currently underway, was published last week (November 23) and recommended the government should move to a fully digital system for inheritance tax.

Another recommendation was to review the government's IHT guidance to make it clearer and more concise and to streamline payment and administrative processes.

The second part of the review will deal with the overall design of the system and is to be released in the spring next year, the OTS said.

Martin Campbell, partner and director of tax services at Anderson Strathern, said the NRB added an additional layer of complexity to the inheritance tax rules, which could have been prevented by simply increasing the current inheritance tax NRB.

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