RNRB

[al91]

Hello,

My mother and father both have property assets under their names, my father has the main home that they both live in under his name and my mother has a investment property under her name.

The main home has value of about 500k now and the investment property has a value of about 550k.

Am I correct in assuming that the main residence will not have any IHT due as my father can use the normal 325K plus the 175K RNRB and my mother will have INT due on 225K (550K - 325K)?

Also, should my father add my mother's name to the title deed so that she can make use her RNRB of 175k, if the main home increases in value?

If her name is added to the main home, she would still have IHT of 225K due on the investment property? Her 325K allowance is not affected in any way.

Thanks in advance.

[AGoodman]

You appear to be assuming that each parent will leave their assets direct to children, rather than to each other, which is a little strange (and tax inefficient).

If they leave everything to each other, then the survivor leaves everything to the children, then the second to die would have £350k RNRB (as a result of owning the home) and £650,000 NRB. There would only be tax to pay on anything in excess of £1m.

Both the regular NRB and RNRB are transferrable to the survivor if unused on the first death:

https://www.gov.uk/guidance/transferring-unused-basic-threshold-for-inheritance-tax
https://www.gov.uk/guidance/inheritance-tax-transfer-of-threshold

[AGoodman]

(the above assumes your parents are married)

[al91]

Thank you for your reply.

Would they therefore have to leave everything to the other in the will and when one passes away, the other would change the will to give everything to the children?

Thanks

[maths]

First spouse to die leaves their estate to the surviving spouse. No IHT on first death due to inter-spouse exemption. NRB and RNRB not used.

On second death two NRBs and two RNRBs are available (ie £1m in total); which means IHT charge at 40% on the excess of 50,000.

Each spouse will simply leave in their will their estate to the surviving spouse unless there is no surviving spouse in which case estate left to children.

[MikeAndreas1]

In the context of your estate planning scenario, if instead of leaving the entire estate to the surviving spouse, the first spouse to die sets up a discretionary trust for the benefit of the surviving spouse and children, how might this impact the use of the NRB, RNRB, and the overall IHT liability on the second death? What are the potential benefits and drawbacks of such a strategy?

[AGoodman]

(nb I don't recommend this)

Advantages:

- the half in the disc trust is protected from state care home cost dissipation (although I don't know how common that actually is, particularly where the survivor has substantial assets anyway, and it assumes the survivor will not want to go private to avoid a bunk bed).
- if the trust assets appreciate in value significantly, it can be more attractive for IHT as they are appreciating outside of the estate of the survivor.

Disadvantages:

- all the hassle of operating a relatively small trust, trust returns, TRS, opening bank accounts, professional fees
- if the husband dies first, leaving his estate to a trust, the loss of both RNRBs, resulting in additional inheritance tax of £140k (that one's a biggie).