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If tax is paid on the estate passing on death then the nil rate band has been fully used and there is nothing left to transfer. However, if tax has been paid on a failed potentially exempt transfer (PET) by reason of an earlier chargeable transfer which cumulates with the PET but not with the estate on death, transferable nil rate band may still be available.

Example

Trevor died on 2nd February 2008 leaving a legacy to his sister of 拢40,000 and the residue of his estate of 拢400,000 to his surviving civil partner, Paul. Trevor made a PET in the tax year 2003/2004 of 拢200,000, which fails as a result of his death within seven years of the gift. He had also transferred 拢200,000 to a discretionary trust in 1998/99.

The tax on the failed PET is calculated by cumulating the chargeable transfer in 98/99; so the aggregate of chargeable transfers is 拢400,000. This results in a liability of 拢40,000.

But, as the transfer into trust was made more than seven years before the death, it does not cumulate with the death estate.聽

Unused nil rate band calculation

The maximum amount that could have been transferred at nil percent is

拢300,000-拢200,000 = 拢100,000, so M is 拢100,000.

The chargeable value transferred on the death is 拢40,000 so, VT is 拢40,000.

M* *is greater than VT by 拢60,000

Transferable nil rate band calculation

E = 60,000

NRBMD = 300,000 so

(60,000 梅 300,000) 脳 100 = 20.0000%

So even though there was a liability to Inheritance Tax as a result of the Trevor鈥檚 death, there is still 20% of the nil rate band available to transfer when Paul dies.