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Where Taxpayers and Advisers Meet

RNRB questions

nokka
Posts:12
Joined:Wed May 16, 2012 12:16 pm
RNRB questions

Postby nokka » Fri Apr 07, 2017 11:58 am

I'm trying hard to get my head around these new rules and wonder if anyone can help me with a couple of questions.

Mother died in 1990 and left 50% of family home to children. Father continues to live there, so he owns 50% and the children the other 50%. The house is worth £400,000 so father's share is £200,000. Father has other investments of approx £600,000.

I calculate potential IHT on father's Estate as follows: Total estate equals £800,000. (Property plus investments), minus NRB (£325,000) minus a further £200,000 (2 sets of RNRB) equals £275,000. 40% of this is £110.000. Is that right ?

As time goes by the RNRB goes up to eventually £175,000 per person, or £350,000 for a couple. Am I right in believing that as father's share in house is £200,000 currently then no extra RNRB can accrue ? If so - can father purchase the children's share of the property now, thereby increasing his share of value of property while decreasing his investments, though leaving his overall estate size the same. Will doing that allow by 2020 the full RNRB of £175,000 for mother and father thereby reducing the IHT liability ?

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: RNRB questions

Postby maths » Fri Apr 07, 2017 4:36 pm

The RNRB reliefs of £100k etc are "maximum" reliefs. Thus, if on death the market value of the deceased's interest in the residence is below the limit for the tax year then the relief is capped at the lower figure.

Father could purchase such percentage of the residence from the children such that market value of the father's total interest on or after 6 April 2020 (as predicted due too market value growth) was worth circa £350,000.
IHT on father's death would then be less than as currently predicted.

This approach is similar to an individual with cash using the cash to purchase assets qualifying for BPR which has the effect of lowering IHT on death.

CGT arises on disposal by children unless private residence relief applies.

Watch SDLT charge.

You infer there is no transferable nil rate band from mother to father; this would be so only if mother on death used up her full nil rate band?

nokka
Posts:12
Joined:Wed May 16, 2012 12:16 pm

Re: RNRB questions

Postby nokka » Fri Apr 07, 2017 5:10 pm

Thank you for your reply. Mother passed 50% of the residential home to children on her death, plus a 50% share in another property. The NRB in 1990 appears to have been £128,000 - I don't know what value was put on those properties at that time. It will have been below £128,000 I suspect but not sure how we find out what it was - any ideas ?

If father remains in good health then looks like it makes sense for him to purchase the 50% off children from what you say. He is quite elderly and may in the next year or 2 need to move from where he is now - perhaps into a rented care property. Hopefully though he will live for a few years yet. Do you think there is a minimum time the residential property needs to be owned fully by him ? Could the property be sold to him and then shortly afterwards he sells up completely ?

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: RNRB questions

Postby maths » Fri Apr 07, 2017 7:19 pm

If father sells the residence in lifetime then on death no RNRB arises as for RNRB relief it is necessary that the deceased owned an interest in a residence at the date of death.

The above is, however, subject to downsize relief.

Given father has lived in the property it will qualify as his residence (irrespective of the % held).

nokka
Posts:12
Joined:Wed May 16, 2012 12:16 pm

Re: RNRB questions

Postby nokka » Sat Apr 08, 2017 9:14 am

Thanks. I can't see why downsize relief wouldn't apply. It's a strange change is RNRB - the Government's stated aim is to encourage older people to downsize - hence the downsize relief. Yet at the same time - for those with no - or cheaper properties, but with substantial other assets - a simple way of paying less IHT on death, while keeping full control of assets, is to upsize. Or so it seems.


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