Husband died in 2018 having severed the property with his wife. His will left a Discretionary Trust for the Nil rate band. The trust continued to hold the half share of the property until the house was recently sold. The sale proceeds from half share was £300,000. The wife owns the other half and leaves all of her estate to her children.
Having discussed with HMRC they have said that the Transferable NRB can still be claimed for the husband as it couldn’t be claim at the date of death as there was no need and also cannot claim when you have a discretionary trust. Would members agree with this and if so is it limited to £300,000 which is the proceeds of sale from the wives half share of the property.
The advice from HMRC sounds suspect, to say the least. Are they saying you can have your cake and eat it!
I take it the discussion was via phone, rather than email or post. I would not wish to rely upon the “advice” unless it was in writing, although I suspect if a professional sought to rely upon it, HMRC would say it is so obviously wrong that the professional should know better.
Unless the trust had been appointed wholly to the wife within 2 years of the husband’s death, so that the read-back provisions of s.144 IHTA 1984 apply, the NRB discretionary trust has reduced ant TNRB that might otherwise have been available.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Not sure if this went through the first time, so apologies if it is duplicated.
Collette, I note that the heading to your post refers to the residence nil rate band, but in the body of your original query you refer just to the nil rate band and transferable nil rate band.
Assuming that you are actually talking about the residence nil rate band then I believe the advice from HMRC may be correct. The husband did not use his residence nil rate band, because the whole of his estate passed either to the NRB trust, or presumably to his wife. His residence nil rate band is therefore still available and can be transferred to the wife. However, the total amount of the RNRB and TRNRB available to her is limited to the value of her share of the residence, i.e. £300,000.
Paul’s comments would of course be correct if you were talking about the basic nil rate band.
I recall there is a quirk in the downsizing provisions which I believe has the effect of restricting the value of the TRNRB in some circumstances, but I can’t recall what those circumstances are and am not able to check at the moment, so may be worth researching.
The husband’s RNRB is not used and hence in principle transferable to wife.
On wife’s death she will not own a residence following sale (unless she effects a further purchase). She may therefore be entitled to a downsizing addition.
On wife’s death maximum RNRB is 175k plus an entitlement to a TRNRB of 175k. Working through the calculation (assuming no purchase by wife of a residence) gives a total loss of RNRB of 300k.
The actual downsizing addition is the lesser of the lost RNRB (300k) and the value of other assets left by the wife to her lineal descendants.
In short, assuming no new house purchase, the maximum RNRB available on death is 300k but will be less and equal to the amount of value if any of other assets left to lineal descendants.
On a slightly different note, how did the trust end up owning a half share of the property? Most NRB trusts are set up as a pecuniary legacy (i.e. the maximum amount of cash that can be given without triggering IHT). Therefore unless the husband’s beneficial property interest was actively appropriated into the trust in satisfaction of the legacy, then that equity would remain un-administered and there would be un-unsettled cash legacy owing to the nil rate trust (i.e. a tax deductible debt in the wife’s estate).