IHT Calculation

[tax5000]

Hello Could somebody tell me how IHT would be calculated in the following simple scenario, essentially it is just to confirm my understanding.

MR & MRS Smith jointly own their residential house valued at £600k and a BTL Property valued at £300k. Assume it is tax year 2020/21.

Mr Smith dies and everything goes to Mrs Smith including the IHT allowance.

When Mrs Smith dies her will says everything should go to her one daughter. How would the IHT calculation work?


Many thanks in advance.

[maths]

On Mr Smith's death no IHT as everything left to his spouse (inter-spouse gifts are exempt).

On Mrs Smith's death her aggregate £900k estate goes to her daughter. Mrs Smith is entitled to her won nil rate band (£325K); plus Mr. Smith's unused nil rate band (£325K); plus the residence nil rate band (RNRB) of Mr Smith £175K plus that unused of Mrs. Smith £175k.

Hence, of his estate of £900k the whole of it is covered by the available NRBs and RNRBs; thus no IHT charge arises.

In fact, £100k of the £650k aggregate NRB is wasted.

[tax5000]

Thank you.

On Mrs Smith's death is the calculation performed as follows;

1) Estate Value 600k + 300k = 900k

2) Reduce Estate value by 175k + 175k ( which is 2 times the RNRB) = 900k- 350k = 550k

3) the IHT tax threshold available would be 325k +325k = 650K hence the entire 550k is within the threshold.

?

Thanks again,

[maths]

Yes.

The RNRB plus any transferred RNRB is set off against the total estate first ie 900 - 350.

The remaining 550 is reduced by the NRB plus the TNRB leaving nil.