HMRCs RNRB calculator is producing an unusual result I don’t trust. Does anyone know the actual means of manually calculating the RNRB downsizing addition?
Facts are as follows:
D sold houseboat in 2016 for £47599
D died in 2025
D did not own a property at date of death
50% of the estate passes to lineal descendants
The calculator is telling me I can claim £73,189 RNRB, but I cannot reverse engineer it in any way to arrive at that result. Can anyone help with this?
I also thought the allowance was capped at the value of the property? Does this not apply for the downsizing addition?
Instinctively it is the lower of bullet 1 and bullet 4. So never £73,189. But in fact that is not what the legislation says. The sale value at bullet 1, the then value of the QFRI, is not the maximum downsizing addition!
I infer that your case involves no brought forward allowance, no taper and a QRFI but no QRI. That simplifies the calculation and its tracing through the legislation.
In statutory terms the “lost relievable amount” (LRA) is calculated per the formula in s.8FE(10). The “former allowance” is £100,000 per subsections (3)(a) and (6). The value of the QFRI is £47,599. The percentage is therefore 47.60% (no directions about rounding). The “allowance on death” is £175,000 but 47.60% of that is £83,300 and is thus the LRA. The downsizing addition is however limited to the amount if
smaller of what is closely inherited: s.8FB(7). You do not state this as an amount only as 50% of the estate.
This is perhaps a surprising, even counter-intuitive, result but is confirmed by IHTM46066 example 2. Jacob sold for £90,000 but his LRA is £105,000. If your client had died at the date of disposal he would have been entitled to RNRB at all: s.8D(1).
Despite having practised as a chartered accountant in an earlier life maths is not my strong suit and for some reason my LRA figure differs from the HMRC calculator’s. My disagreeing with HMRC is of course a totally normal state of affairs!
Such a helpful response, really appreciated. £83,300 was one of (!) the results I came to when trying to work it all out, and looking at the legislation and the IHT Manual I am convinced this is correct. I think I’m going to have to raise the matter with HMRC - I will let you know if I get an explanation of their figure.
How would brought forward allowance change the calculation? D did have a predeceased spouse but I hadn’t even considered claiming the TRNRB as I thought it would have no effect on the value of RNRB available to the estate. Looking at example 3 of IHTM46066 I calculate an LRA of £95,200 - anyone else agree with this?
IHTM46065 sets out the brought forward allowance reasonably clearly. The relevant example is 3 in 46066. It increases the “former allowance” from £100k to £275k.
This looks promising but, more surprises, it is not where the value of the QFRI (disposal value) is low. This is because the key percentage is reduced from 47.6% to 17.3% and the LRA is only £47,575! (17.3% of £275k).
This is definitely counter-intuitive but the outcome seems clear, to me at least. The claiming of a BFA seems only to benefit the estate where the value of the QRFI exceeded the former allowance and so was limited to 100% of it, making the LRA also 100% but only of a single RNRB i.e. £175k. The inclusion of a BFA in such a case may or may not reduce the key percentage but it will apply to a double death allowance or £275k on your particular facts.
Assume the disposal value had been £100,000 or more. The percentage is then 100% and the LRA is £175k but in your case with BFA £275k.
I find this so surprising that I will be happy if anyone can point out a flaw in the analysis as it seems almost a trap. Example 3 is not quite on all fours because Rob died in October 2017 when the single allowance on death was only £100k. But the only adjustment needed seems to be that this figure becomes £175k on your facts. S.8FE(3)(c) only adds the BFA into the “former allowance” if it is actually claimed.
If I am right is it irresponsible for HMRC not to point it out or, ye gods forfend, are they unaware of the position. I rather hope someone can prove me wrong.
Having run the calculation again myself I see the issue. The Net value of the estate before deducting reliefs or exemptions exceeds £2m, so we also have tapering affecting the calculation. The Value after deducting reliefs and exemptions is below £2m, but it is the first figure which is used for tapering and this is above £2m due to failed PETs. If I artificially reduce the net value to below £2m I get to £83,298.
I want to do the figures myself so I can explain the allowance to my client, so I will try and do the sums manually.