I’m still getting to grips with some aspects of the new RNRB.
Wife dies leaving everything to husband. Husband then dies leaving the estate (including a qualifying property) equally between daughter A, and grandchildren B & C on attaining 25. B is now 26 and C is 23.
The gift to C is not a qualifying gift.
On the face of it the estate will benefit from 2/3rd’s of the RNRB
The position can potentially be “saved” if the Executors exercise their power of advancement (with usual reading back provisions) meaning the full RNRB can then be available.
Do forum members agree this is the correct course of action?
I agree that is the correct course to secure the full RNRB if the trustees (not the executors surely) exercise their power of advancement within 2 years of the death, relying on s 142 IHTA 1984. However the trustees need to avoid being driven by tax saving alone and should consider the best interests of the contingent beneficiary (ie C). It may come to the same outcome, but the tax tail should not be allowed to wag the dog!
Thanks for confirming. In this case the family had asked if C could inherit now as she is 23 and quite sensible.
When discussing Wills with clients this week, we needed to discuss what would happen with sub gifts to grandchildren. They didn’t like the idea of flexible life interest trusts and simply had the choice of no age contingency or age contingency but potential IHT consequences. They went with no age contingency which could potentially see g/children inheriting £500k at 18. Just seems wrong!
Are you sure that the RNRB would be restricted to 2/3rds on the basis that one beneficiary would not qualify? I understand the rules to say that the amount of RNRB is the lower of the maximum RNRB available and the value of the home passing to the qualifying beneficiaries.(HMRC Case Study 6). Therefore if the 2/3rds going to A & B is greater than £100k then the full RNRB will be available or is my understating of the position flawed?
Nigel Scase
Greene & Greene
If C is entitled to income on his share then he already has an IPDI, so his share will attract the RNRB- and an absolute advance would not be read back for IHT under s144. If C is not entitled to an IPDI an advance to him absolutely or on an IPDI could be made after taking account of all normal circumstances before exercising a fiduciary power.
Would the gift to C not qualify anyway, if she is over 18 and has an IIP by virtue of s31 Trustee Act? Unless the power to accumulate income has been extended?
I have looked again at the HMRC case study and spoken to a colleague and I still do not see the argument for the 2/3 restriction in the RNRB.
The HMRC case study has one-half of the property going to the step-son but with the estate being able to claim the full RNRB as his half share of the property is greater than the RNRB available. I do not see the distinction between that and the circumstance here.
Since the RNRB came in, when drafting Wills, where appropriate I include a clause giving age-contingent beneficiaries a right to income from the age of 18 (without power for the trustees to accumulate) - this ensures the RNRB is not lost due to the age contingency. Are others doing this too?
It will be lost if the gift is to a grandchild who is 15 at the date of death as s31 will apply until 18. As I said earlier today, to achieve an IPDI without the complications of a life interest for grandchildren, exclude s31 altogether for grandchildren with an age contingency.
However this is not necessary for children, provided they take at or before 25.
On reflection I agree with Nigel! The maximum amount of the RNRB is calculated by reference to the value of the qualifying residential interest inherited by direct descendants. Therefore if the value of the QRI inherited by the 2 qualifying beneficiaries is more than the default allowance, the full RNRB can be claimed.
In this case, if nothing was done, and C was not entitled to income until he was 25, if the full RNRB could not be claimed ex C at the date of death, and no advance was made, presumably the shortfall could be claimed later if C became 25 within 2 years of the date of death as a result of s144.
It is the value of the available RNRB v the value passing to the 2 older children that is applicable. Current 2x RNRB = £200k. If value of property passing to the 2 children is £200k or more, the RNRB is fully available. If the value is passing is less, then only that amount is available. However if all 3 children are over 25 at time of death and the property is only worth £150k, then that is the maximum that can be claimed not the £200k NRB.