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Where Taxpayers and Advisers Meet

Property nil rate band

jswd32
Posts: 34
Joined: Wed Aug 06, 2008 3:17 pm

Property nil rate band

Postby jswd32 » Fri Jan 24, 2020 3:50 pm

Hi,

I wanted to check if I understand these rules correctly. My Uncle is Married but permanently separated from his wife and they both live independently of each other in their own homes. They have consulted a solicitor regarding IHT planning and he has advised they should stay married due to their large IHT liability and set a contract in force to pass each others wealth direct to their children on their passing.

The uncle has savings of 500k and a house of 500k and this is likely to increase. The aunt has savings of 300k and a house of 500k also. However they believe that due to the new nil rate band residence allowance, once either of them dies, they have setup in the wills for the remaining spouse to pass the property and all savings over to the two grown up children free of IHT.

In my mind the new nil-rate band for residence can only be applied for one property, so if the aunt died first and the uncle passed the house and savings direct to the children, a significant sum would fall into a chargeable lifetime transfer tax as it would appear as the uncle would be gifting more than his nil rate band?

I thought I understood the old rules of IHT, but these new rules still appear to catch me out.

Has my uncle found a great iht strategy and reason for staying married?

Thanks

maths
Posts: 7895
Joined: Wed Aug 06, 2008 3:25 pm

Re: Property nil rate band

Postby maths » Fri Jan 24, 2020 4:05 pm

The RNRB is a per person relief.

Thus, each of your aunt and uncle are entitled to a RNRB (£175k from 6 April 2020).

maths
Posts: 7895
Joined: Wed Aug 06, 2008 3:25 pm

Re: Property nil rate band

Postby maths » Fri Jan 24, 2020 4:08 pm

Bit seems missing to my post.

Each of uncle and aunt have a NRB £325k plus a RNRB £175k ie each £500k IHT free.

Thus, £500k of uncle's estate exposed to IHT charge; £300k of aunt's estate exposed to IHT charge.

jswd32
Posts: 34
Joined: Wed Aug 06, 2008 3:17 pm

Re: Property nil rate band

Postby jswd32 » Fri Jan 24, 2020 4:27 pm

Maths,

Thank you for clearing that up. I believe My Uncle believes that the whole property will be free to pass to kids, as well as the residual savings. Its not exactly a normal situation I know. I did think there may of been a complication as there would be two properties individually claiming the RNRB under the one marriage.

So under their wills, the property can be specified to transfer to the children upon the death of Auntie free of IHT and then the residual savings of 300k would be in his estate(due to inter spouse free transfer) and he would need to then use most of his nil rate band to gift this to his daughters, however he would then have to survive 7yrs and would leave his whole estate with only the NRBR of 175k +NRB of 25k remaining.
He would then have 800000 left in his estate liable to IHT if he died in that initial 7yrs?

Does not sound like a great plan, more of kicking the can further down the road? Or perhaps I have that wrong.

AGoodman
Posts: 1043
Joined: Fri May 16, 2014 3:47 pm

Re: Property nil rate band

Postby AGoodman » Fri Jan 24, 2020 7:39 pm

Essentially, provided they do it correctly, they have a joint £1m to leave to their children tax free. Everything they have at death above this (sounds like £800,000 at the moment) will be taxed at 40%.

They get the extra £175k additional nil rate band each (but transferable between them) because they are leaving property to their children but it does not attach to the property specifically - it just behaves (on death) like an extension of the main nil rate band.

The only realistic way to reduce this liability would be for them to:

- make gifts and outlive the gifts by 7 years; or
- invest some monies in relievable assets (essentially AIM investments) for 2 years prior to death - this may not be practical.

There are also "estate planning" bonds which can act as semi- gifts while still providing an income but I am not a fan and don't know a great deal about them (the two may be connected).

"So under their wills, the property can be specified to transfer to the children upon the death of Auntie free of IHT and then the residual savings of 300k would be in his estate(due to inter spouse free transfer) and he would need to then use most of his nil rate band to gift this to his daughters, however he would then have to survive 7yrs and would leave his whole estate with only the NRBR of 175k +NRB of 25k remaining." - Sorry don't understand this. Also, if he gives away most of his money, what will he live on?


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