Wife died May 2015, main residence valued at £200,000 held jointly with surviving spouse who inherited by survivorship. Rest of wife’s estate to children by Will.
Widowed spouse sold the main residence 10th June 2015 for £202,000 & moved in to reside with daughter at her residence.
Widowed spouse now has £400,000 cash & an investment property valued at £150,000 where he lived as a child, before inheriting from parent, never resided there during his ownership period so, excluded from RNR by 8H IHTA 1984.
On death (on or after 6.4.17) widowed spouse leaves his estate to his daughter & grandchildren. Will late wife’s 100% unused RNRB be available for widowed spouse’s PRs to claim, given his estate has no qualifying RNR;and if so will the brought forward RNR be limited to £100,000 being value of late wife’s 1/2 share of residence at her death in May 2015
This is an unfortunate case. There is no residence to be closely inherited on death and so no RNB. There was downsizing but it was before 8 July 2015 so there is no downsizing relief either.
If the downsizing had been one month later, the residential enhancement at the time of the sale is treated as £100,000 ( for sales before 6 April 2017 - see IHTA s8FE(6)) and to this could be added the brought forward allowance of the wife and the husband’s death, which is treated at £100,000 in all cases where the death was anytime before 6 April 2017. That would give downsizing relief of £200,000 available in 2017/18.
I believe the brought forward allowance will be calculated on the basis of the residential enhancement at the date of the second death, so not limited at that time to ?100,000 after 5.4.18
I am grateful for replies to date. My question was about the availability of brought forward RNR when without that no RNR would apply to widowed spouse’s estate
Is it possible to apply the late wife’s unused, brought forward RNR, if widowed spouse dies on or after 6.4.17, given that his estate will have no “residential property interest” to uplift, can a brought forward RNR apply in these circumstances?
I agree that for downsizing relief the brought forward allowance will be calculated on the basis of the residential enhancement at the date of the second death. The example I gave was for a second death in 2017/18. If the second death is later the brought forward allowance for downsizing increases, despite the fact that the brought forward allowance for a first death before 6 April 2017 would not increase for ordinary RNB purposes. Whatever happened to tax simplification?
I believe the TRNRB is also recalculated on the second death by reference to the amount of the RNRB at that time. This seems to be confirmed in hmrc case studies.
I understand the office of tax simplification only gets to look at historic legislation, not new! It seems extraordinary.
Once up and running the RNRB will work along similar lines to the transferable nil band in terms of brought forward allowances. But for the death of one spouse at the current time, or in the past, the brought forward allowance is fixed at £100,000. Downsizing relief assumes a death at the time of the downsizing and so for current downsizing includes the fixed brought forward allowance of £100,000, where applicable, but then allows this to be uplifted to the actual brought forward allowance on the death of the second spouse. This is an added complication to the rules but presumably it is designed to ensure a correct result.
I do not think the RNRB is ‘fixed at £100,000’ where the first spouse dies before 6 April 2017.
See HMRC’s guidance issued on 8 November:
Where the first of the couple died before 6 April 2017 their estate wouldn’t have used any of the RNRB as it wasn’t available. So 100% of the RNRB will be available for transfer unless the value of their estate exceeded £2 million and the RNRB is tapered awayhttps://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band#tap-away. It’s the unused percentage of the RNRB that’s transferred, not the unused amount. This makes sure that if the maximum amount of RNRB increases over time, the survivor’s estate will benefit from that increase.
You calculate the actual amount that’s transferred to the surviving spouse or civil partner’s estate in 2 steps:
Step 1. Work out the percentage of RNRB that wasn’t used on the first death. You do this by dividing the unused amount of RNRB by the total RNRB that was available on the first death and multiplying the result by 100. If the first death occurred before 6 April 2017 the unused RNRB and total available RNRB are both deemed to be £100,000 so the unused percentage is 100%.
Step 2. Multiply the percentage of RNRB that was unused on the first death by the maximum RNRB available at the time of the survivor’s death. This gives the sum available to transfer.
Many thanks, Jill, for interesting HMRC analysis on the carry forward from first death before 6 April 2017. My reading of Section 8G (4)(a) IHTA, where it says the carry forward is £100,000 , clearly needs revising.
Malcolm, some of the finest minds in the country (apart from ours, of course) came to different conclusions about the carry forward of pre-6.4.2017 death RNRBs. According to Prof Lesley King, Simons Taxes were of the opinion that £100K meant £100K too (maybe they had been reading too may Brexit statements).
But we know now that it ratchets up just like the ordinary NRB, and that is welcome, since it is good for the taxpayer.