Is there a priority between NRB and TNRB?

Trusts Discussion
1

If I have an NRB and TNRB available in an estate, is there a priority order in which they must be used?

For example, suppose I am a widower whose first wife left me her entire estate. I then remarry. My will leaves a cash legacy of £325,000 to my son and residue to my second wife. On my death can my executors claim the TNRB of my first wife and use it against the legacy, thereby leaving my entire NRB intact for transfer to my widow on her later death? Or must they use up my NRB first?

Conversely, if the facts were such that claiming the NRB was advantageous over claiming the TNRB (I can’t actually think of a set of facts which fit that, but hypothetically) then are my executors allowed to do that? Or (again) must they be used in a particular order?

Is the answer different between the RNRB and TRNRB?

2

Maybe this helps?

IHTM43035 - Inheritance Tax Manual - HMRC internal manual - GOV.UK (www.gov.uk)

This is catered for by IHTA84/S8B(2) which allows the personal representatives making a claim on the last death to include a claim on an earlier death, provided it will not affect the tax payable on that death. It follows that it must have been possible for a claim on be made on the earlier death – so the earlier death must have been on or after 9 October 2007.

Example

Roger died in July 2010. He had been predeceased by Jane who died in January 2008. She in turn had been predeceased by her first husband, Stephen, in 1997.

On Stephen’s death, he left his whole estate to Jane so that 100% of the nil rate band was unused. On Jane’s death she left her whole estate, valued at £270,000, on discretionary trusts for the children of her first marriage. As the estate was below the nil rate band, there was no need to make a claim to transfer the unused nil rate band from the first death.

On Roger’s death in July 2010, the amount of unused nil rate band available to transfer from Jane’s death is

Unused nil rate band calculation

M = £300,000

VT = £270,000

M* *is greater than VT by £30,000

Transferable nil rate band calculation

E =£30,000

NRBMD = £300,000 so

(30,000 ÷ 300,000) × 100 = 10.0000%

However, if Jane’s personal representatives had made a claim to transfer unused nil rate band from Stephen’s death, the actual nil rate band available on Jane’s death would have been £600,000. So the calculation becomes

Unused nil rate band calculation

M = £600,000

VT = £270,000

M* *is greater than VT by £330,000

Transferable nil rate band calculation

E =£330,000

NRBMD = £300,000 so

(330,000 ÷ 300,000) × 100 = 110.0000%

So the nil rate band available on Roger’s death is capped at 100% of the amount available at that time, giving a nil rate band of £650,000.

3

On my death can my executors claim the TNRB of my first wife and use it against the legacy, thereby leaving my entire NRB intact for transfer to my widow on her later death? Or must they use up my NRB first?

Neither. On the transfer of an unused element of a NRB (in % terms) this % is taken of the NRB of the recipient transferee and added thereto to give a single maximum amount of NRB.

EG
W dies when NRB 325k leaving estate to H.
No part of W’s NRB is used.

On H’s subsequent death NRB is 325k but added thereto is W’s TRNB of [100% x 325k} giving H’s estate a single NRB of 650k.

This single figure of 650k is simply offset against H’s estate subject to IHT. However, in carrying out the offset the NRB and TNRB are not distinct amounts allocable as appropriate.

It is perhaps worth noting that the TNRB is not capable of being used to offset the IHT due on chargeable lifetime transfers made by the surviving spouse (H).

Malcolm Finney

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