Use of nil-rate band discretionary trusts

Since the introduction of the transferable nil-rate band in 2007 nil-rate band discretionary trusts (NRBDTs) have become less popular. However they can be advantageous for spouses in some circumstances and many wills still contain them. All references in this article to spouses also include civil partners.

Background

Before October 2007 the purpose of including a NRBDT in wills for spouses was to ensure that each inheritance tax allowance known as the nil-rate band (NRB) would be used. If everything passed to the survivor on the first death the NRB of the first-to-die would be wasted as only one allowance would be available on the survivor’s death.

The simplest way of using the NRB on the first death was to leave an equivalent sum directly to children or other intended beneficiaries. The main drawback however was that the relevant amount would...