IHT Planning for Couples: Using Both Nil Rate Bands

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If you're married or in a civil partnership, you've probably heard that you can leave everything to your spouse tax-free. And that's true. Transfers between spouses are completely exempt from inheritance tax — no limits, no conditions.

But here's the thing nobody mentions at the time: that doesn't remove the IHT bill. It just delays it. The real tax hit comes when the second spouse dies, and the full estate passes to the next generation.

For couples who own a property company, understanding how the different allowances work — and where they fall short — can make a significant difference to what your family actually inherits.

The spouse exemption: a blessing and a trap

Let's start with the good news. The spouse exemption means you can transfer unlimited assets to your husband, wife, or civil partner — during your lifetime or on death — without triggering any IHT. It's one of the most generous reliefs in the tax system.

The instinct, naturally, is to leave everything to your spouse. It feels right. It feels safe. And it avoids any immediate tax.

But here's where the trap lies. By leaving everything to your spouse, you're concentrating the entire estate in one person's name. When that person eventually dies, the full value of everything — the home, the savings, the property company — lands in a single estate. And that's when HMRC takes 40% of everything above the available allowances.

The spouse exemption doesn't save tax. It defers it. And in many cases, deferring it without a plan makes the final bill bigger than it needed to be.

The nil rate band: what each person gets

Every individual has a nil rate band (NRB) of £325,000. This is the amount that can be passed on free of inheritance tax. It's been frozen at this level since 2009 and will remain so until at least 2030.

Here's the important bit for couples: if the first spouse to die doesn't use their nil rate band — because they left everything to the surviving spouse under the spouse exemption — that unused allowance can be transferred to the survivor.

This is called the transferable nil rate band. In effect, the surviving spouse ends up with a combined NRB of up to £650,000.

So far, so good. But £650,000 doesn't go very far when you own a property company.

The residence nil rate band — and why it often doesn't help

There's a second allowance called the residence nil rate band (RNRB), worth up to £175,000 per person. For a couple, that's potentially £350,000 combined.

Together with the standard nil rate bands, a married couple could theoretically pass on up to £1,000,000 tax-free. That sounds like a lot. But the RNRB comes with conditions that trip up property company owners:

• It only applies to your main residence — the home you live in
• The home must be left to direct descendants (children, grandchildren)
• It does not apply to company shares, investment properties, or buy-to-let portfolios
• It starts to taper away if the total estate exceeds £2,000,000

That last point is particularly painful. If your combined estate — including the property company — is worth more than £2m, you start losing the RNRB entirely. At £2,350,000, it's gone completely.

The maths that keeps people up at night

Let's look at what this actually means for a typical couple with a property company.

Why "just leave it to my spouse" isn't a plan

The most common approach we see is the simplest one: each spouse leaves everything to the other, and then the survivor leaves everything to the children. It feels straightforward. It feels safe.

But this approach misses several planning opportunities:

The seven-year clock isn't ticking

One of the most effective ways to reduce IHT is to transfer assets out of your estate during your lifetime. If you survive for seven years after the transfer, the value falls outside your estate completely. But every year you delay is a year wasted. If both spouses are alive and well, you have two seven-year clocks you could be running simultaneously.

Both nil rate bands could be working harder

Rather than simply relying on the transferable nil rate band after the first death, there are ways to use both nil rate bands more effectively while both spouses are alive. This is where the structure of your wills — and the ownership of your company shares — becomes really important.

Wills might need rethinking

Many couples have "mirror wills" — identical wills that leave everything to each other, then to the children. These are fine for straightforward estates. But for couples with property companies, a more considered approach is often needed. This might involve nil rate band trusts, specific legacies, or different treatment for different assets.

The details of how this works in practice depend heavily on your specific circumstances — the value of the company, the structure of your shareholdings, your ages, your children's ages, and your overall financial position. There's no one-size-fits-all answer, which is exactly why generic online advice can be misleading.

Planning options for couples

Without going into the full technical detail — because every situation is different — here are some of the areas that couples with property companies should be thinking about:

• Restructure during both lifetimes — if both spouses own shares (or can be given shares), both can transfer to the next generation, starting two independent seven-year clocks
• Consider share ownership carefully — should both spouses hold shares? Should they hold different classes of shares? The answer depends on your specific tax position
• Review your wills — ensure they're set up to maximise available allowances rather than simply deferring everything to the second death
• Understand the RNRB taper — if your estate is near the £2m threshold, there may be ways to bring it below, preserving the full residence nil rate band
• Think about timing — the younger and healthier you both are, the more options you have. Waiting until one spouse is unwell dramatically reduces what's possible

Don't leave it to chance

The difference between a couple who plans and a couple who doesn't can easily be six figures. That's not an exaggeration — as the example above shows, the numbers get large very quickly when a property company is involved.

The good news is that the planning options are well-established and entirely legitimate. The challenge is that they need to be tailored to your specific situation — your company structure, your property values, your family circumstances, and your plans for the future.

That's not something a blog post can do. But it is something a conversation can start.