I have a concern re the Downsizing Provisions and the TRNRB.
Following HMRC’s forms and PLC guidance it seems that if a property is sold post July 2015 but before the death of either spouse, the allowances can only be applied to the share of the property of the second spouse to die? (So where spouses owned jointly in equal shares to only half the value of the property.) I just wanted to check my understanding is correct, as it doesn’t feel right, and would appreciate any guidance the forum has to offer.
I have clients who downsized in 2014 from a £350k house to a £250k property, so the RNRB will only be applicable re the £250k property. They are both still alive and in the process of moving into residential care and so may well sell the property once they are settled. Their combined estate is worth in the region of £1.25 million and we need to consider the best way of protecting the RNRB – one approach may be to simply leave their respective shares of the proceeds of sale directly to their children in both Wills (or maybe make use of an IIP as we have care costs to consider); but that is only if my understanding of the Downsizing Provisions and their interaction with the Transferable RNRB is correct and I’m not unnecessarily complicating matters.
Each spouse has their own RNRB and downsizing will apply on their respective deaths as appropriate, in the same way as the normal NRB and TNRB.
I agree, but my concern is if one spouse dies after downsizing and all the estate including the proceeds of sale is inherited by surviving spouse, then on that spouse’s death it is just their half share of the property that the allowances and transferable allowance may be applied (ie the downsizing aspect doesn’t seem to be transferable). That seems to be what the forms and PLC suggest – so in my couple’s case only £125k of the property proceeds would pass tax free to the children, unless the first spouse to die leaves their share of the proceeds direct to the children.
On the death of the first spouse to die a comparison is made between the maximum available RNRB at that time and the downsizing addition [ie which is the difference between the lost RNRB and the amount of assets left to the children]. To the extent that the former exceeds the latter then the difference is transferable to the surviving spouse.
This thread has helped me to understand a similar issue that I have been pursuing with HMRC since last spring. HMRC recently came back with an answer, and it is the case that the policy intent was to restrict the benefit of the transferability of the RNRA where Downsizing has occurred.
Helen has correctly identified that her clients would effectively lose one RNRA if there is no QRI at death, and on first death everything is left to the surviving spouse. Full benefit of the two RNRAs would only be enjoyed where the assets are closely inherited at the earliest opportunity- i.e. first and second death.
My issue occurs where there is a QRI at death. Here the policy intent was to reduce the benefit of transferability in similar fashion, but it transpires that accidentally the statute has been effected in the taxpayer’s favour.
I have posted an article with full details on my site here: https://www.capitalandprofessional.com/dodging-downsizing-downfall/. STEP will also be reporting on this soon.
Thanks Mark, a lot to digest but an extremely helpful article and I will follow how matters progress re HMRC.
So much to watch out for when advising re the RNRB.