If surviving spouse leaves an estate in excess of £2 million so that the tapering rules apply, do they apply to the bands concurrently so that the two bands are lost in full if the survivor’s estate is over £2 250 000 (using a RNRB figure of £125 000) or consecutively so that that two bands are lost in full only if the survivor’s estate is in excess of £2,500 000?
Sally Runnacles
Farnfields
As you know, where an estate is valued at more than £2 million, the RNRB will be progressively reduced by £1 for every £2 that the value of the estate exceeds the threshold.
In determining whether the £2 million threshold is breached, it is necessary to ignore reliefs and exemptions. This means that business relief and agricultural relief are ignored when determining the value of the estate for the RNRB even though they are taken into account to calculate the liability to IHT.
As the £2 million is based on the value of the assets owned at the time of death, it does not include any lifetime gifts made by the deceased, even if they were made within seven years of death and are included in the IHT calculation.
If the deceased has brought forward an unused RNRB from a spouse or civil partner then this can also be factored in, so some individuals may not see the RNRB fully disappear until the estate is currently worth in excess of £2.5 million.
Like the standard nil rate band, any unused RNRB can be transferred between spouses and civil partners to be used when the survivor of them dies, regardless of when the first death occurred and whether or not the first deceased held a qualifying residential interest (that is, property ownership is not required by the first deceased).
The only check that is required is whether the first deceased’s estate was over £2 million. The transferable RNRB must be claimed by the personal representatives within two years from the end of the month in which the second death occurs.
Where the first death occurs before 6 April 2017, 100% of the RNRB will be available to be transferred when the surviving spouse or civil partner subsequently dies, unless the estate was over £2 million. This is the case regardless of whether or not the first to die owned a qualifying residential interest.
Further details can be found here:
https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm46040
Francesca Gandolfi
Canada Life
Further to my previous reply, here is an example of how it all works:
Jeff dies on 24 January 2019 leaving an estate worth £2,100,000.
He leaves his £450,000 home to his wife Jenny and everything else to his children.
The maximum RNRB in the tax year 2018/19 is £125,000. But as Jeff’s children don’t inherit the home, his estate can’t use any RNRB.
However, Jeff’s estate is worth more than the taper threshold of £2 million by £100,000. Therefore the transferable RNRB available from Jeff’s estate is tapered by £1 for each £2 over the taper threshold.
So his available RNRB is reduced by £50,000,meaning that if Jeff had left his home to his children his estate would have been entitled to RNRB of £75,000 (£125,000 less £50,000).
The percentage of unused RNRB in Jeff’s estate which can be claimed on Jenny’s death is therefore 60% (£75,000 ÷ £125,000).
Jenny dies on 23 May 2020, when the maximum RNRB is £175,000.
She has an estate worth £1.8 million, including her home worth £500,000. She leaves all of this to her children.
The amount of additional threshold available to transfer to her estate is:
•maximum RNRB in tax year 2020/21 £175,000
•multiplied by the unused percentage x 60%
•additional threshold to transfer £105,000
So Jenny’s estate qualifies for £175,000 RNRB based on her estate, plus a further £105,000 transferable RNRB from Jeff’s estate, to give a total RNRB of £280,000
Francesca Gandolfi
Canada Life