Widow (W) dies leaving an estate (including family home) of aound £800,000 having given away two years before her recent death (over 2017/2018 and 2018/2019 tax years) £250.000 to each of 4 family members (no special occasions such as marriage etc) making total gifts of £1M. I understand that the gift recipients are liable for 40% IHT on their gifts but it has been suggested that these recipients can make use of the estate IHT exemption of £650,000…but not the RNRB allowance of £350,000…is this correct because it seems unfair on the 2 sons who are the residuary beneficiaries (who are 2 of the 4 gift recipients) as their IHT allowance plummet from £1M to £350,000.
The NRB plus any TNRB (aggregate £650k) in calculating the IHT on the widow’s estate are first applied against any CLTs and PETs made within the 7 years prior to her death.
Thus, the £650k is absorbed by the lifetime PETs to the children being offset against each PET in chronological order. Thus, the first two PETs absorb 500k and the third PET the balancing 150k. This leaves 100k of the third PET subject to 40% IHT and the fourth PET subject to 40% on 250k.
The IHT on the widow’s estate is 40% of the chargeable estate of 800k as there is no element of the NRB/TNRB available for offset (both having been utilised against the lifetime PETs). However, against the death estate may be offset the widow’s own RNRB (175k) plus any TRNRB (possibly at 100%) giving an aggregate RNRB of 350k leaving 800k less 350k chargeable at 40%.
The RNRB/TRNRB can only be offset against the death estate (not lifetime gifts).
John
I am also retired, but always understood that in these circumstances the NRB was applied initially to the chargeable lifetime gifts - hence the choice in some cases of taking temporary life insurance cover. However, I think it gets worse as the NRB is applied initially to the earliest of the chargeable lifetime gifts … so leading to potential inequalities between the lifetime donees.
I remember cases when the timing turned on the date cheques [remember them?] were presented for payment …