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Rules around transferable nil rate band causing confusion

29 November 2018

The rules around the transferable nil rate band are causing confusion for advisers, according to Canada Life.

Results from the company’s Hot Topics report show that only 7% of advisers understand when to correctly apply the NRB after the death of a spouse or civil partner.

Two-thirds believe that the NRB can be used for lifetime gifting, with a further quarter (27%) of advisers unsure, the research found.

The current rules stipulate that the unused part of the NRB can 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.

Under the inheritance tax rules a client using transferable NRB for lifetime gifting could incur an immediate inheritance tax charge of up to £65,000.

The results of the research also showed that when it comes to re-using the lifetime gifting NRB threshold of £325,000 every seven years, more than one in ten (12%) were either unsure or unaware of how cumulative gifting operates.

Neil Jones, market development manager, 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. It’s little wonder that this is a difficult area for advisers – the NRB and the residence nil rate band (RNRB) rules are, at times, deeply confusing. The Government needs to demystify the NRB and especially the RNRB.”

Jones added: “Maximising the use of any available nil rate band is one of the key ways to move money to future generations and away from the taxman. It forms the central pillar for many successful financial plans. By its very nature, it encourages advisers to be there for their clients over a period of years, even decades and be ready to help subsequent generations.”

Professional Paraplanner