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

residence nil rate band

Andrew01
Posts:15
Joined:Wed Aug 06, 2008 3:27 pm
residence nil rate band

Postby Andrew01 » Thu Jul 22, 2021 12:35 pm

Hello IHT forum

Is there any room for retrospective IHT planning with the residence nil rate band?
Currently, believe the residence nil rate band is £175,000 in the 2021 to 2022 tax year.
A parent with a will died in early July 2021, there is one surviving parent.

My parent's home is worth £400,000 and my parents own equal shares tenants in common, not sure if (joint tenants would make difference).
Therefore no benefit from the residence nil rate band...

Scenario
Can the trustees of the deceased estate purchase a property of the value of the current nil rate band + residence nil rate band
325,000 + 175,000 = £500,000

And therefore retrospectively benefit from the Residence nil rate when passing the estate to the beneficiaries of the will?

I Can see it would be beneficial for future IHT planning that, my parents' home passes to the living parent rather than other beneficiaries in the will.
Other assets of the deceased estate can pass to the will beneficiaries other than the surviving parent and any used nil rate band can pass to the surviving parent.
As the surviving parent would then be able to currently benefit from the residential nil rate to the amount of £75,000 (current home value) and any unused nil-rate band of the previously deceased parent.

Mr chancellor we do not all live in the south and therefore benefit from the residential nil rate band, your system is a bit unfair.

regards
andrew

Jholm
Posts:184
Joined:Mon Mar 11, 2019 4:22 pm

Re: residence nil rate band

Postby Jholm » Thu Jul 22, 2021 1:41 pm

Unless I'm missing something, these figures are below the normal nil rate band anyway so the additional RNRB seems irrelevant? Thinking is below....

Where they were tenants in common, someone (your query doesn't say who) inherits the 50% share, worth £200k. This is below the NRB, exc. RNRB. If no other significant assets or previous lifetime transfers, no IHT due.

If none of the RNRB is used for the deceased parent, then the surviving parent can claim a 100% uplift to the available RNRB upon death, so the scope of using is not lost.

I'm confused why you feel it is unfair for people who don't live in the south. Given house prices are generally less further north, it occurs to me that those standing to lose out more are the ones with property values in excess of the available RNRB.

Jholm
Posts:184
Joined:Mon Mar 11, 2019 4:22 pm

Re: residence nil rate band

Postby Jholm » Thu Jul 22, 2021 1:46 pm

Also, if the trustees buy a property, the deceased would not have ever lived it in themselves so RNRB would not be available.

Also note, for RNRB to be available, the property must be passed to 'lineal descendants', generally children and grandchildren.

maths
Posts:8256
Joined:Wed Aug 06, 2008 3:25 pm

Re: residence nil rate band

Postby maths » Thu Jul 22, 2021 1:52 pm

The RNRB applies to what is referred to as a "qualifying residential interest" at the time of death.

If on death the "home" is worth £400k and owned by spouses jointly the deceased's interest either automatically passes to the surviving spouse (if held as joint beneficial tenants) or via the deceased's will (if held as tenants in common).

Assuming 50/50 the deceased's share is worth £200k so unless there are other assets in the estate no IHT is payable thereon (unless aggregate exceeds £325k).

If aggregate does exceed £325k then in fact the RNRB (currently £175k) is in any event offset BEFORE the NRB and thus may be of use.

However, if the home was held as tenants in common the deceased's share must pass (ie inherited) to one our more lineal descendants to qualify for the RNRB.

Andrew01
Posts:15
Joined:Wed Aug 06, 2008 3:27 pm

Re: residence nil rate band

Postby Andrew01 » Thu Jul 22, 2021 5:05 pm

Unless I'm missing something, these figures are below the normal nil rate band anyway so the additional RNRB seems irrelevant? Thinking is below....

Hello John, other assets in the deceased estate take them above the nil rate band, maybe I had not made this clear, but I would not be asking the question of RNRB if this was not the case.

Not fair as people in the south could pass on more money to their beneficiaries as property prices are significantly higher.

Andrew01
Posts:15
Joined:Wed Aug 06, 2008 3:27 pm

Re: residence nil rate band

Postby Andrew01 » Thu Jul 22, 2021 6:18 pm


Where they were tenants in common, someone (your query doesn't say who) inherits the 50% share, worth £200k. This is below the NRB, exc. RNRB. If no other significant assets or previous lifetime transfers, no IHT is due.

My parents own their home as "tenants in common" 50% of the £400k home each, but have significant other assets.

If none of the RNRB is used for the deceased parent, then the surviving parent can claim a 100% uplift to the available RNRB upon death, so the scope of use is not lost.
I did not know this about RNRB, so thank you IHT is complex,
so the unused (currently £175k) RNRB can be transferred between spouses just like any unused nil-rate band?

Therefore would it not be easier to understand if everyone just had Nil rate band of £500k, (or £400k if £500k were too large a loss to the exchequer) treating people more equally
and not everyone has children (lineal descendants) to make use of the RNRB.
And I know there are advantageous rules about downsizing and the RNRB, but hang on you're not living in the home that gives you the allowance at death more unnecessary complexity as far as I am concerned.

Andrew01
Posts:15
Joined:Wed Aug 06, 2008 3:27 pm

Re: residence nil rate band

Postby Andrew01 » Thu Jul 22, 2021 7:29 pm

Hello Maths

I am just a layperson

When I last looked at the RNRB, it had just come into force, and I found it hard to follow at the time the HMRC gave many different example scenarios...and I end up even more confused.
As time has passed since RNRB came into force it looks like there is now a better understanding.
The RNRB applies to what is referred to as a "qualifying residential interest" at the time of death.

At the time of death
However, I believe there is what I am going to call the downsizing anomaly.

If aggregate does exceed £325k then in fact the RNRB (currently £175k) is in any event offset BEFORE the NRB and thus may be of use.
Thank you I did not know this was the order for RNRB and then NRB if the estate includes their home.

I misunderstood and thought the NRB was used first and then if the deceased owned a share in their home and their share of the home was worth more than £325k then the RNRB could be used.
To clarify, the deceased whose estate includes a home (and they have lineal descendants) can use the RNRB first in the IHT calculation and then the NRB?

It appears IHT taxation is a bit fairer than I originally thought, as I thought incorrect only deceased with a home worth more than NRB, could make use of the RNRB.
However still, the deceased without a home but an estate above the NRB would not benefit from the RNRB at all.
And deceased with no lineal descendants would also not benefit from the RNRB at all.

Is, the RNRB available if a property passes into an NRB Discretionary trust which includes lineal descendant beneficiaries?

However, if the home was held as tenants in common the deceased's share must pass (ie inherited) to one our more lineal descendants to qualify for the RNRB.
To clarify a share in a property held as tenants in common cannot pass to the spouse and then the surviving spouse would have the benefit of two RNRB on their death?
However, a share in a property held as joint tenants would pass to the spouse and then the surviving spouse would have two RNRB available?

maths
Posts:8256
Joined:Wed Aug 06, 2008 3:25 pm

Re: residence nil rate band

Postby maths » Thu Jul 22, 2021 10:41 pm

1. To clarify a share in a property held as tenants in common cannot pass to the spouse and then the surviving spouse would have the benefit of two RNRB on their death?
2. However, a share in a property held as joint tenants would pass to the spouse and then the surviving spouse would have two RNRB available?
1. An interest in a property held as a tenant in common passes by will. Therefore one spouse tenant in common can under their will pass their interest to anyone be that the other surviving spouse, brother etc.
If the interest passed to anyone other then a child/grandchild of the deceased then the deceased spouse's RNRB would not have been used and the surviving spouse could then in principle benefit from two RNRBs.

2. An interest held as a beneficial joint tenant by one spouse automatically passes to the surviving spouse in which case as the interest cannot pass to the deceased's child/g'child the surviving spouse could in principle benefit from two RNRBS.

Andrew01
Posts:15
Joined:Wed Aug 06, 2008 3:27 pm

Re: residence nil rate band

Postby Andrew01 » Fri Jul 23, 2021 1:59 am

I asked the question

Is, the RNRB available if a property passes into an NRB Discretionary trust which includes lineal descendant beneficiaries?
The answer appears to be no the RNRB is not avaliable

Explanation why below,

Discretionary will trusts

Where the deceased wishes to give beneficiaries maximum flexibility in the way in which the estate is distributed, it is not uncommon to see the whole estate, or at least an amount equivalent to the NRB, left to a discretionary trust. If the home, or a share of it is left to a discretionary will trust then there will be no RNRB available as there is no one ‘closely inheriting’.

If however within 2 years of death there is an appointment of the trust assets by the trustees to a direct descendant, then it would be treated for IHT purposes as if the assets had been left to the direct descendant outright (S144 IHTA 1984). In that event, the RNRB would be available as the direct descendant is treated as if he/she had inherited the property on death.

Source
https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/residence-nil-rate-band-rnrb-planning/

Leading me to ask the question, instead of using a deed of appointment within 2 years to utalise the RNRB, as above.
Could the trustees of the discretionary will trust instead create an interest in possesions in the home to a direct desendant to make use of the RNRB within 2 years?

maths
Posts:8256
Joined:Wed Aug 06, 2008 3:25 pm

Re: residence nil rate band

Postby maths » Fri Jul 23, 2021 11:25 am

Yes.


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