This appears to be an issue that has potentially fallen between the cracks, but I hope someone can bring this back from the brink!
W died in 2014 her Will creating two Flexible Life Interest Trusts.
FLIT1 was her share of the house with gift over to her 4 children, 1,2,3 & 4.
FLIT2 was the remainder with gift over to her husband’s children 3,4, 5 & 6.
The RNRB was not available at the time of her death so is available to the Estate of her husband (he is still alive), but children 1 & 2 will be disadvantaged if the TRNRB is applied to H’s estate which divides his estate between 3,4,5, & 6. (excluding 1 & 2.)
There is sufficient value in H’s half share of the house to absorb both allowances.
W had a full NRB and H has most of an NRB.
Common sense would suggest that each estate should benefit from its own NRB (in the usual way) and RNRB but it might be argued that Wife’s estate was never entitled to an RNRB and never could have qualified in its own right, so the benefit should be applied against H’s estate – as he lived long enough to be able to claim it! Understandably, H wants to avoid a future rift.
I think the main point here is that neither the NRB nor the RNRB is applied to a specific part of the estate. You just add together all the different parts of the estate, then deduct all the NRBs and RNRBs available and calculate the tax on the balance. The tax bill is then, (ignoring for the time being any complications with tax free legacies) apportioned pro rata between the various elements according to their respective values.
Whenever you are using transferred NRBs in cases where the estate passes to different sides of the family it can result in an “unfair” allocation of the tax between them, in that one family might benefit from the other’s NRB. There are various ways of dealing with the problem depending on the values and circumstances, but it is usually best addressed at the time of making the Will.
Assuming that the husband is the life tenant of both FLITs, his estate will qualify for both TRNRB and TNRB (as well as his own allowances).
Where there are aggregating assets such as FLITs, then HMRC simply apportion the combined value of all 4 NRBs pro rata between the free estate and the aggregating assets.
In respect of FLIT2, it doesn’t matter that there is no QRI in it. As long as husband’s estate qualifies for the RNRB & TRNRB (in its own right and/or by virtue of an aggregating asset that contains a QRI and satisfies the closely inherited conditions), then any aggregating asset will receive a pro rata proportion of all NRBs.
On W’s death, pre 6 April 2017, the RNRB had clearly not been used. It is therefore eligible for use by way of transfer to H against his estate.
H’s RNRB is therefore comprised of his own RNRB plus the TNRNB from W (ie 100% of his RNRB). In short, H has available twice the RNRB at the date of his death.