Published on: 19th January 2026

Maximising Inheritance Tax Efficiency: The Third Nil Rate Band

For a widow or widower, navigating Inheritance Tax (IHT) can feel like a daunting task during an already difficult time. However, understanding how to utilise Nil Rate Band (NRB) Trusts can significantly increase the amount of wealth passed down to the next generation tax-free.

Standard tax law allows for a Transferable Nil Rate Band. This means if the first spouse to die leaves everything to the survivor, their unused £325,000 allowance transfers over. When the second spouse passes, they effectively have a double allowance of £650,000.

The "Third" Band Scenario

The strategy of claiming a "third" band arises when a person is widowed twice. Under current UK rules, an individual can only inherit one full unused NRB from a deceased spouse. However, if the widow(er) left their estate into a Nil Rate Band Discretionary Trust rather than to their second spouse directly, their allowance is "used" by the trust rather than being lost or transferred.

How it Works

1. The First Marriage: When the first spouse dies, their will directs everything to their spouse. No NRB allowance is used.
   
   
2. The Second Marriage: The widow(er) P remarries. P then passes away and passes £325,000 to trust. The executors claim the unused allowance from the first spouse.
   
   
3. The Result: Upon the surviving spouse’s eventual death, they have their own £325,000 plus the unused transferred £325,000 allowance from P. So the Executors can claim £650,000.

By using the trust, the family has effectively shielded £975,000 from IHT, whereas simply inheriting everything directly twice would have capped the tax-free limit at £650,000.

When adding the Residence Nil Rate allowances this may mean that a couple, where one has been a widow(er), with children could claim a total of £1,325,000 in allowances against Inheritance Tax.

It is important to use the correct trust at the correct time and claim the correct allowance(s) at the correct time.

If you would like to speak with one of our Consultants to discuss any of the issues raised in this article or any other Estate Planning topic please telephone 01732 868190 or click here.

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