Testator has died. In his Will residue is left to surviving spouse. There is a gift of pecuniary legacies amounting to £25,000 followed by a gift as follows:
I give subject to the above, to my daughter whichever is the lesser of:
The upper limit of the nil per cent rate in the table of rates of tax applicable on my death in Schedule 1 to the IHTA 1984;
The maximum amount which will not give rise to a charge to Inheritance Tax by reason of my death.
My question is, is this £300,000 or £475,000 - ie is the RNRB included in the calculation of this sum?
These gifts are typically referred to as being a pecuniary legacy: ie a “sum of cash” (or similar). As the RNRB cannot be claimed on a gift of cash, you would not be able to claim it here.
The RNRB is not lost, of course, as it can transfer to the spouse (although that may not be what the daughter wants).
It transpires that the deceased made a lifetime gift to his daughter of £200,000 in 2018. Does this mean the gift to her by the Will is now only £100,000. If not it means there will IHT of £80,000 on the lifetime gift.
On the basis of the clause as set out in your initial post, the daughter is entitled to a legacy of the lesser amount calculated by reference to the two formulae stated.
The second formula will apply and, on the basis of the facts now known, means her entitlement under the will might only be £100,000.
I say “might” as the deceased’s annual IHT allowance may have been available to reduce the value of the gift for IHT purposes. If two annual IHT allowance were available, that would reduce the taxable value of the lifetime gift to £194,000, so that the testamentary legacy would be £106,000.
If the lifetime gift was made, say, at the time of the daughter’s marriage, further reliefs might be available to reduce the value of that transfer for IHT purposes, resulting in an increase in the amount of the legacy now payable.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals