Interaction between transferable residence nil rate band and nil rate band

Trusts Discussion
1

Scenario

Wife died 23/01/20 leaving an estate of just under £500,000 in cash
Her half share of the property was sold in Dec 2015 therefore can claim downsizing allowance – her half share was £222,500.

Husband died 22/01/11
In his will he left £75,000 in cash to children and his half share of the property to his children valued at the time at £213,000.

Q1. Can we use the residence nil rate band against husband’s property gift to children, thus limiting the erosion of the transferable nil rate band?

If husband’s estate just used his own nil rate band (and not the residence nil rate band), we would not be able to use the full value of the two residence nil rate bands, since wife’s half share of the property was only £222,500 (ie under £300,000).

Because gifts were made by wife, if we apply the second approach, the estate is subject to some IHT. Whereas, if we can deduct the £150,000 from the husband’s gift of property and therefore more of the transferable nil rate band is available for wife’s estate there would not be tax to pay.

All advice gratefully received.

Kind regards

Gill Collins
Warwick & Barker

2

The RNRB only applies with respect to deaths occurring on or after 6 April 2017. Thus, no RNRB was available on the death in 2011 of the husband.

This would mean that on the death of the wife the husband’s RNRB would be available for transfer.

Malcolm Finney

3

As the husband died before 6 April 2017, his estate had no entitlement to the residence nil rate band. However, as the wife died after 5 April 2017, her estate is able to benefit from the brought forward allowance available in these circumstances.

Accordingly, the benefit of any residence nil rate band can only be used to reduce the IHT on the wife’s death.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

4

Thank you. Can I use the full residence nil rate bands (ie £300,000) even though the property in wife’s estate is only worth £222,500 – I suspect not, thus
IHT will be payable on my calculation.

Gill Collins
Warwick & Barker

5

A claim for the residence nil rate band is limited to the value of relevant property passing to qualifying beneficiaries where that value is less than the amount of the relief available. In the present instance, therefore, it can be no more than the value of the property in the wife’s estate - £225,000.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

6

No. The RNRB amount cannot exceed the value of the residential property interest.

Malcolm Finney