Where Mr A is a widower and has remarried Mrs B, and Mr A has now died leaving part of his interest in his residence worth say £475,000 directly to his children, can Mr A’s personal representatives claim only the transferable RNRB from his first marriage (£150k) plus the transferable nil rate band (£325k) to avoid Inheritance Tax whilst preserving his own RNRB and NRB to be claimed later after Mrs B’s death?
I believe this is well established for the NRB, but I am not sure whether this is possible for the RNRB.
The IHT436 claim form for the transferable RNRB requires PRs to state what was the “adjusted allowance” on the first death, how much of that was actually used, and then calculate that a %. In my scenario above Mr A would be using £150k or his adjusted allowance of £300k (based on 2019/20 tax year) so it looks like he has used up 50% of his allowance and Mrs B’s PRs would only be able to claim 50% to bring forward on her death.
If the order of application is that RNRB reduces the taxable estate before the standard NRB comes into play, I am not sure that it would be permissible to claim the brought forward RNRB for use on Mr A’s death and use his standard NRB now, but preserve his own RNRB for the benefit of his widow’s estate.
You would arrange for a £150k share in the property to be closely inherited by the children with the remainder passing to spouse as an exempt transfer. Assuming that there is no tapering to deal with and a 100% allowance is brought-forward from the late Mrs A’s estate, then: Mr A’s Default and Adjusted Allowances would be £300,000 for 19/20 and the RNRB would calculate as £150,000 to match the closely inherited value [NV/100 in the legislation - IHTA84 s8E(2)]. That section also determines that there is the remaining £150,000 available to carry forward which is expressed as a percentage of the Residential Enhancement for the year of £150,000 giving 100% as the carry-forward percentage [s8G(3)].
My understanding is that the RNRB available on death of X includes any transferable RNRB from the earlier death of a spouse Y. There is thus one single amount of RNRB available on X’s death.
X will also have a NRB which would include any TNRB from the earlier death of Y. Again, there is thus one single amount of NRB on X’s death.
Assuming NRB’s of 325k and RNRB’s of 150k this would give rise to RNRB of 350k and NRB of 650k (assuming none of the RNRB and NRB of Y was used on Y’s death ie 100% up lift is available on X’s death).
The X’s estate comprises 475k of property.
The RNRB of 300k must be applied first leaving 175k of the death estate against which 175k. of the NRB of 650k is applied (leaving 475k unused of X’s NRB).
Thus, on the death of X’s spouse (X having married post Y’s death) she would be entitled to her own RNRB (150k; but nothing to transfer from X) and her own NRB but increased by 100% transfer from X giving 650k.
In short, I do not think that on X’s death it is possible just to use only the transferred RNRB and transferred NRB from Y’s earlier death leaving X’s own RNRB to be transferred on the death of his second spouse.
Thanks this is helpful. Mark’s response above offers a way of using only the transferable RNRB without using the deceased’s own RNRB. However, it appears this only works if the only chargeable legacy in the will is an interest in the residence worth £150,000 to direct descendants. I had hoped that we could also leave another £325,000 of assets to the children to soak up the TNRB, but the consensus seems to be that the whole (double) residence nil rate band must be used before any amount of TNRB.
Is it possible for PRs to choose not to claim the Residence Nil Rate Band at all even if the estate is eligible for it, so as to use the Transferable Nil Rate Band instead and preserve the Residence Nil Rate Band?
There are clear rules and deadlines that any brought forward allowance for the RNRB must be explicitly claimed, but not for the ordinary RNRB itself.
My understanding is that whilst RNRB is applied before the standard NRB is applied, there is no reason why the value of qualifying residential property passing to the relevant beneficiaries cannot be limited to the “single” value of the RNRB, effectively utilising only brought forward RNRB. The executors can claim the brought forward RNRB, leaving the newly deceased’s RNRB available to be claimed by the estate of their surviving spouse/civil partner.
This will not impact the executors’ ability to utilise the Transferable NRB for use in the newly deceased’s estate.
Unless IHT is payable in the estate, the value of the property will not be determined by HMRC. In which case, I suggest a formal valuation of the property as at the date of death be obtained and a variation entered into giving the children a defined share of the property by reference to the (agreed?) value. Using the suggested value of £475,000, the children might be given a six-nineteenths share (i.e. 150,000/475,000) between them. Whilst this may have an immediate cost (the valuation), it could reduce costs later should any dispute arise as to the relative entitlements, whether amongst the beneficiaries or with HMRC in relation to CGT or IHT!
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
My understanding of IHTA 1984 ss 7 and 8D is that an entitlement to the RNRB (or NRB) cannot be “disclaimed” (nor is a claim necessary).
The 0% rate automatically applies to the RNRB (and NRB) element of an estate.
However, the TRNRB only applies where claimed (s 8L).
If Mr A failed to claim the unused element of Mrs A’s RNRB then it would seem Mrs A’s unused element is lost. On Mrs B’s death, after that of Mr A, Mrs B would be eligible to claim any unused element of Mr A’s RNRB (but not the unclaimed and unused element of Mrs A’s RNRB).