I am advising for a lady who is the life tenant of a life interest trust set up in the Will of her late husband who died in 1972.
The only asset of the trust is the property which is her home. The remaindermen are her children.
I am satisfied that the property will be exempt from IHT under para2/Sch6/IHTA1984 as estate duty was paid on her husband’s death.
My question is whether her estate can claim a Residence Nil Rate Band (and maybe a Transferable Residence Nil Rate Band)? On the face of it, it appears she can - she has a Qualifying Residential Interest in a property that is left to her children. However, it doesn’t seem right that her estate can claim both the exemption and the RNRB? What is the authority for this?
It would appear the draftsman did not consider the point you raise. From my reading of the legislation I agree that the RNRB could be claimed, I appreciate that seems counterintuitive, but it flows from the fact that the RNRB is not set specifically against the chargeable value of the residence, it is just ‘extra’ NRB allowance if the relevant conditions are met. I guess however that cases such as this are going to be very few and far between.
I also think it would be available here. Strictly speaking the Residence Nil-Rate Amount reduces the chargeable value of the estate referred to as VT in the legislation rather than increasing the standard NRB -this avoided having to rewrite all sections that refer to the NRB. This would lead you to question whether it could apply to an exempt transfer. However the interaction between VT and the RNRA in s8E(7) is only a test to see if the RNRA exceeds VT - but it doesn’t require the residential interest itself to be part of VT.
Curiously, the downsizing provisions do link the two together - see s8FA which refers to part of VT being “attributable” to the residential interest. So if you happened to have a downsizing situation you’d need to get the cold towel on your head and pick your way through that part of the statute!
Your client’s case appears to be a straightforward s8E case (albeit an IIP) and it seems to me that there is no requirement for the residential interest to be part of the chargeable transfer under that section. Therefore the exempt residential interest could qualify for the RNRA reducing the chargeable value of the estate.
I appreciate that some time has passed since you posted this but I have stumbled upon your post in a similar situation.
I wondered if you were successful in claiming the RNRB along with the estate duty surviving spouse exemption?