Transferring a spouse's unused inheritance tax threshold: the percentage sum, the two-year limit and £52,000 worked on one estate

A widow dies. Her late husband's estate, years earlier, left some of the money to the children rather than to her. The family asks whether any of his inheritance tax threshold is still available. It can be, and the sum is a percentage, not a pound figure.

What GOV.UK says

The GOV.UK guidance I read sets out these points:

• The unused percentage is 100% minus the share of the threshold the first estate used. GOV.UK's first example shows the working as "£130,000 / £325,000 x 100".
• The survivor's available threshold is the threshold in use at the first death multiplied by the unused percentage, plus the current threshold of £325,000.
• The most that can be transferred is £650,000, which applies where none of the first partner's threshold was used.
• The couple must have been married or in a civil partnership when the first death occurred.
• For a full return, the claim goes on form IHT402 alongside IHT400. The guidance says to claim when applying for probate for deaths on or after 1 January 2022, and to use form C1 for Scotland. For excepted estates with a death on or before 31 December 2021, only the full unused threshold can be claimed, using IHT217.
• The request must reach HMRC "within 2 years of the death of the surviving spouse or civil partner".

GOV.UK's second example is useful because the threshold at the first death was not £325,000. David's estate was £800,000 with £50,000 left to Sandra. The threshold in use then was £250,000, so £50,000 used 20%, leaving 80%. Mark's threshold becomes £325,000 x 80% + £325,000 = £585,000. The percentage is taken against the old threshold and then applied to today's.

The sums

I have assumed the first death was also under a £325,000 threshold. If it was earlier, find the threshold in force on that date first.

Check of the £195,000 row: 195,000 / 325,000 = 0.6. Unused is 0.4. 325,000 x 0.4 = 130,000. 130,000 + 325,000 = 455,000.

Now put a second estate on top. The widow's estate is £700,000.

The claim saves £150,000 - £98,000 = £52,000. Check: the extra threshold is £130,000 and 40% of £130,000 is £52,000. Each 10 percentage points of unused threshold is worth 10% x 325,000 x 40% = £13,000 of tax.

The figures above leave out the residence nil rate band and any gifts. I did not read how those interact with the transfer.

Putting it into practice

• Ask early whether there was a first death. The claim only needs the first estate's figures and the marriage certificate details, so find them when you open the file. See what a client care letter should cover for a new matter.
• Work out the percentage before the IHT400. The result changes the tax and the payment date, which is covered in the inheritance tax payment deadline and interest, worked.
• Check the other reliefs on the same estate. The residence nil rate band taper and the charity rate both change the tax.
• Count the hours the first-estate search, the percentage sum and the form take using the admin scorecard for a small firm.

What I did not read

I did not read the full IHT402 form or its notes, the rules for a spouse who married more than once, how the residence nil rate band transfers, or what happens if the claim is made late. The IHT402 page gave no deadline of its own, so the two-year limit is from the transfer guidance only. I did not check the legislation or whether the figures change after today. Read the current GOV.UK pages before you advise.

Overlyft builds AI staff who join your firm's team, gather the first estate's figures, work out the percentage and the tax comparison, and draft the IHT402 entries, with a person approving them before anything is filed.

This is general information, not legal advice. Check the current GOV.UK pages and your own obligations for each client.