This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

RNRB and Pecuniary gifts

Uther
Posts: 5
Joined: Mon Oct 30, 2017 8:45 pm

RNRB and Pecuniary gifts

Postby Uther » Tue Nov 12, 2019 1:03 pm

I have an estate which consists of my house and a few thousand £’s.
I intend to leave the estate to 5 “direct descendants” so that the estate will be “closely inherited” and RNRB will be available.

Can anyone clarify if RNRB would remain available under the following circumstances.
1) I make pecuniary gifts to some of the beneficiaries ?
2) I make pecuniary gifts to all of the beneficiaries along with a share of residue ?
These gifts would have to be from house sale proceeds.

Would I need to direct the personal representatives to sell the house with the sale proceeds being specifically paid as pecuniary gifts to some beneficiaries ?

Part of the reason for pecuniary gifts is to limit the amount given to my grandchildren.

AnthonyR
Posts: 303
Joined: Wed Feb 08, 2017 2:33 pm

Re: RNRB and Pecuniary gifts

Postby AnthonyR » Thu Nov 14, 2019 5:11 pm

As long as your direct descendent inherit the house or the proceeds of sale from the house then you will qualify for the RNRB (assuming your estate isn't affected by the taper after £2m).

This means that if, for example, you left a pecuniary legacy of £100,000 to your daughter and there wasn't cash in the estate to pay that legacy then in practice the house is likely to be sold to fund that legacy. This would still qualify for RNRB despite the house being sold.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

maths
Posts: 7599
Joined: Wed Aug 06, 2008 3:25 pm

Re: RNRB and Pecuniary gifts

Postby maths » Thu Nov 14, 2019 7:34 pm

My understanding is that it is not beyond doubt that the RNRB applies where the property is sold to generate cash to pay any pecuniary legacies.

AnthonyR
Posts: 303
Joined: Wed Feb 08, 2017 2:33 pm

Re: RNRB and Pecuniary gifts

Postby AnthonyR » Fri Nov 15, 2019 10:51 am

HMRC Guidance here seems to infer that this should be ok:

https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm46033
Sale of the residence post-death

The actual residence does not have to end up in the hands of the deceased’s direct descendants. An estate could still be eligible for the RNRB if the deceased’s personal representatives sell the residence as part of the administration of the estate and pass the sale proceeds to the direct descendants.

Equally a gift in the deceased’s will directing the personal representatives to sell the deceased’s residence with the sale proceeds being paid to a direct descendant would be treated as the residence being closely inherited.

Once the direct descendants have inherited the residence, there are no restrictions on what they have to do with it. An estate will still qualify for the RNRB even if the direct descendants decide to sell the residence after they have inherited it.
Is the concern that unless the Will specifically refers to the gift of the proceeds of sale then it wasn't closely inherited?

In any case whatever is left as residue should at least qualify as it's going to direct descendents.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

maths
Posts: 7599
Joined: Wed Aug 06, 2008 3:25 pm

Re: RNRB and Pecuniary gifts

Postby maths » Fri Nov 15, 2019 4:16 pm

Where part of the property is sold in order to settle the pecuniary legacy the estate will not benefit from the RNRB; the property is not specifically left to a direct descendent.

The property must be “closely inherited” ie the property must pass under a will or intestacy to the deceased’s lineal descendants; more specifically, X inherits the property if there is a disposition of it (whether effected by will, etc) to X [IHTA 1984 s.8J]. In the current situation there has been no disposition of the property to the children.

Uther
Posts: 5
Joined: Mon Oct 30, 2017 8:45 pm

Re: RNRB and Pecuniary gifts

Postby Uther » Fri Nov 15, 2019 10:38 pm

Thank you gentlemen for your responses.

I am a layperson and the main reason for raising this subject was that, from my research on the internet, there seemed to be differing views as to whether or not such actions would result in the loss of the RNRB.

I have just discovered the following article by Professor Lesley King
https://communities.lawsociety.org.uk/september-2019/plenary-good-as-golden/6000333.article
and I have posted the relevant part below.


Issues with the residence nil-rate band
The residence nil-rate band (RNRB) has been with us for some time now, but it continues to throw up queries.

The Trust Discussion Forum had this question posted on 9 May 2019: “Am I correct in thinking that a will leaving a large pecuniary legacy to the deceased’s son with residue to surviving spouse will NOT attract RNRB, even if (1) the legacy exceeds £325,000 and (2) the bulk of the estate comprises the deceased’s house?”

Where, as here, there is a legacy to a child and the only asset from which the legacy can be paid is a residence, it may seem like hair-splitting to suggest that the child is not inheriting an interest in the residence, but I would put money on that being correct, for the following reasons.

Meaning of “inherited”
To obtain the RNRB, a residence or interest in a residence must be closely inherited. Section 8J (2) of the Finance (No. 2) Act 2015 says: “B inherits the property if there is a disposition of it (whether effected by will, under the law relating to intestacy or otherwise) to B”.
HM Revenue & Customs (HMRC) says in the Inheritance Tax Manual at IHTM46033 that there is no requirement for a residence left to lineal descendants to be retained. It can be sold by the personal representatives (PRs) so long as lineal descendants receive the sale proceeds.

Appropriations are not dispositions
The same paragraph of the manual makes it clear that HMRC does not regard an appropriation as a disposition. If PRs appropriate a residence or interest in a residence to lineal descendants in or towards satisfaction of a pecuniary legacy, the lineal descendant is taking as “by virtue of the PRs [sic] administrative powers, not directly under the terms of the will”.

Although lineal descendants will be regarded as inheriting where they end up with the proceeds of sale, this is where there is an initial disposition of the residence to them and not where the initial disposition is of a legacy which the PRs have funded by selling the residence.


HMRC also says in the Inheritance Tax Manual at IHTM46033
“Equally a gift in the deceased’s will directing the personal representatives to sell the deceased’s residence with the sale proceeds being paid to a direct descendant would be treated as the residence being closely inherited.”

If that path is chosen and all beneficiaries are direct descendants, what is best way forward to ensure conformity with the RNRB rules? I put forward the following options and ask for your comments, alternatives and advice.

1) The sale proceeds just become part of the residual estate then are distributed as a mixture of pecuniary amounts and percentage shares.
Eg: £50,000 each to A and B with the remainder being split 60% for C and 40% for D.

2) The pecuniary amounts paid directly from the sale proceeds, the remainder added to the residual estate and then distributed as % shares.
Eg: £50,000 each to A and B from sale, remainder + residual being split 60% for C and 40% for D

3) Treat the sale proceeds separately from the residual estate and distribute as a mixture of pecuniary amounts and percentage shares. The residual estate then distributed as % shares.
Eg: £50,000 each to A and B with the remainder being split 60% for C and 40% for D from sale proceeds. Residual estate split 60% for C and 40% for D.

AnthonyR
Posts: 303
Joined: Wed Feb 08, 2017 2:33 pm

Re: RNRB and Pecuniary gifts

Postby AnthonyR » Thu Nov 21, 2019 12:18 pm

Just to be difficult (or perhaps to simply the matter) is there a need to have specific pecuniary legacies if the estate is simply being split between the 5 children/grandchildren? Just appoint a percentage to each of them and there's no fear of the RNRB being lost as there isn't this complication.

Alternatively, if you do want to leave a financial figure, perhaps a clause leaving a share of the property equal to £50,000/£100,000 etc which means they do inherit a share of the property, which would likely have to be liquidated to provide that legacy.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

AnthonyR
Posts: 303
Joined: Wed Feb 08, 2017 2:33 pm

Re: RNRB and Pecuniary gifts

Postby AnthonyR » Thu Nov 21, 2019 12:19 pm

Where part of the property is sold in order to settle the pecuniary legacy the estate will not benefit from the RNRB; the property is not specifically left to a direct descendent.

The property must be “closely inherited” ie the property must pass under a will or intestacy to the deceased’s lineal descendants; more specifically, X inherits the property if there is a disposition of it (whether effected by will, etc) to X [IHTA 1984 s.8J]. In the current situation there has been no disposition of the property to the children.
Thanks maths for clarifying this. It's not something I'd come across in practice.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

maths
Posts: 7599
Joined: Wed Aug 06, 2008 3:25 pm

Re: RNRB and Pecuniary gifts

Postby maths » Thu Nov 21, 2019 6:03 pm

Anthony, I think the position hasn't been totally resolved vis a vis HMRC. However, I think that there are potential problems (as per my post).


Return to “Inheritance Tax, IHT, Trusts & Estates, Capital Taxes”

cron