RNRB and pecuniary legacies

HMRC have now replied with guidance on the RNRB and pecuniary legacies.

The question I put to them was whether the RNRB will apply in situation such as the following. Assume that an estate contains the deceased’s home valued at £500,000 and other assets of negligible amount. One nil band is available. If the will leaves cash legacies of £250,000 to each of the two children of the deceased and residue to an unrelated person, would the RNRB be given?

The reply is as follows:
‘As the property does not pass to direct descendants, either via a specific legacy or as part of the residue, there would not be an eligible claim for Residence Nil Rate Band to apply.’

So once more it is time to go through the cabinet of all existing wills.

Malcolm Gunn
M B Gunn & Co Ltd

This matches previous HMRC guidance in which I believe it is confirmed that, where the home is included within the residue and the residue to left say 50% to children and 50% to others, only 50% of the RNRB is available regardless of whether the PRs appropriate the whole property to the children in partial satisfaction of their entitlement. Appropriations appear to be ignored for RNRB purposes.

Tobias Gleed-Owen
Hewitsons LLP

Or so HMRC say. In the carefully constructed scenario you put to them, it is obvious that the value of the home, or most of it, necessarily passes to the children, whether in specie or otherwise (as is the case with residue). HMRC state RNRB is not available as the property “does not pass to direct descendants, either via a specific legacy or as part of the residue”. Where in section 8K does it say it has to pass by these means?

Someone, somewhere, Is going to try to challenge this, some day.

Dale Ross
Blackadders LLP

It was a disappointing answer and produces a ludicrous result in practical terms. The legislation requires a disposition of the property to a lineal descendant and one might have hoped that an estate comprising only a property which in fact passes only to children would satisfy this test, but HMRC clearly require an actual disposition by the will. Most respondents to this Forum agreed HMRC’s interpretation of the legislation.

The point may not surface on a future appeal to the Tribunals because the simple answer will usually be to organise a suitable deed of variation. There will however be cases where a deed of variation cannot be used and one can only hope that these will have
a well drafted will in the first place.

Malcolm Gunn

M B Gunn & Co Ltd