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HMRC internal manual

Inheritance Tax Manual

HM Revenue & Customs
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Interaction with alternatively secured pensions: restriction of nil rate band on recapture charge

When a recapture charge arises under IHTA84/S151B(1), the nil rate band to be used is that which applies at the date of the recapture charge IHTA84/S151BA(5). But that nil rate band must be reduced by the “used-up” percentage specified in IHTA84/S151BA(6). The restriction works to scale back any increase in the nil rate band that has occurred since the scheme member’s death so that only the unused portion of the nil rate band is uprated by that increase.

Example from IHTM43048 continued

The restriction reduces the nil rate band applicable on Helen’s death by the ‘used-up’ percentage of the difference between the nil rate band maximum at the occasion of charge - her death - (£325,000) and the nil rate band maximum in force at the date of Jason’s death (£300,000). That is £25,000.

The calculation for the ‘used-up’ percentage set out in IHTA84/S151BA(7) as

100 - ((E ÷ NRBM) x 100)

  • where
  • E has the same meaning as IHTA84/S8A(4) as at Jason’s death,
  • NRBM is the nil rate band maximum also at Jason’s death.

So, in this example, the calculation is

100 - ((120,000 ÷ 300,000) x 100) = 60%

So the “used-up” percentage of the difference between the nil rate bands is therefore

£25,000 x 60% or £15,000.

So the nil rate band that applies to the tax charge on the ASP is reduced from £350,000 to £320,000.

Note that this stage in the calculation applies no matter who the relevant dependant was. The use of the definition in IHTA84/S8A(4) does not limit these calculations to cases where TNRB is in point, it simply draws on an identical definition for convenience.

The example continues at IHTM43050.