Essentially a downsizing allowance can be claimed in respect of a s.52 IHTA charge on the death of a QIIP owner.
The legislation on this I find gratuitously and unnecessarily confusing. IHTM46055 does however express clearly what was apparently intended, so one hopes HMRC will not instruct Crown Counsel to argue that the Manual is wrong in law.
The concept is straightforward enough. If an individual dies and does not own a qualifying residential interest in their free estate because they sold it in their lifetime they are entitled to a downsizing addition if and to the extent that some other assets in their estate are closely inherited. This is the case in the OP, although the value inherited is not stated: the difference is that the value charged is not that of the deceased’s free estate but of the settled property subject to a QIIP within s.49 (1) or (1A)
The maximum value for relief is the RNRB amount plus TRNRB. Currently that is £350,000 (£175,000 x 2) depending on the date of death of each spouse and asset valuations..
S.8HA has a clear title. It is plainly designed to confer the right to a downsizing allowance when the former QRI (FQRI) was owned by a QIIP trust, and not in a free estate, so that the earlier disposal of it was necessarily made by the trustees and not by the QIIP owner. Fictionally he or she is deemed to have been the seller, thus equating the trustees’ disposal to a free estate disposal by an individual and thus securing RNRB downsizing allowance for a QIIP whose underlying value is taxed on the owner’s death: s.8HA(6).
The confusion, to me at least, lies in the pre-conditions contained in subsection (5). In subsection (5)(b) “the interest” must mean a QRFI as, ex hypothesi, the original QRI has already been disposed of and so cannot still be all or part of the settled property when the QIIP ends on the death of its owner as is literally required in (5)(a). We lawyers are taught to draft words that convey an unambiguous meaning. Subsection 5(b) should say either “the former interest is” or “the interest was”.
The title of a section is not generally a key component of the intellectual toolkit for the accepted canons of interpretation of its textual contents. But “the interest” in (5)(b) only makes sense if in context it means a QRFI and not a QRI.
I only draw attention to this infelicity because some members of the Forum, including myself, do quaintly prefer that the legislation should support the IHTM explanation rather than only the other way round and criticise me, quite rightly, if my comments seem to conflict with the statute.
So in principle TRNRB can increase the downsizing RNRB allowance but how much relief is actually due depends on facts not disclosed in the OP.
Jack Harper
The drafting of