Deceased’s house was sold a couple of years ago (for c. £600k) and, over the course of the next year and a half, made a series of gifts to children (totalling c. £230k) from some of the sale proceeds. The will leaves everything to the children.
From the conditions for claiming the downsizing addition, my understanding is that the lifetime gifts don’t prevent the estate from getting the full RNRB. Instinctively, though, that doesn’t seem right. Is the estate actually able to claim the RNRB given that not all of the sale proceeds were gifted?
You are correct that the lifetime gifts have no impact on the estate getting the full RNRB. Lifetime gifts are not taken into account when you consider the £2m tapering threshold, as this is based on the value of the assets owned at the time of death.
The legislation states that where the deceased sells their home and doesn’t buy another property provided “other assets of equivalent value, are in the deceased’s estate and inherited by the individual’s direct descendants on that person’s death” the PRs can claim RNRB. As you state that the will leaves everything to the children provided the estate is worth at least £500K (I have assumed they are single) they should be able to claim the full RNRB.
The lifetime gifts will become chargeable transfers and be brought back into the IHT calculation. If the gifts were £230K then the nil rate band is reduced to £95K. Then if the estate is entitled to the full £175K RNRB this is deducted from the taxable estate first followed by the remaining NRB.
This link might help Work out and apply the residence nil rate band for Inheritance Tax - GOV.UK (www.gov.uk)
Regards
Kim
Thanks Kim
Thankfully we can claim TNRB and TRNRB from deceased husband’s estate so no IHT.