I have a question about the transfer of Residence Nil Rate Band (RNRB) between spouses.
H and W own their current home as tenants in common and also have about the same amount each in cash savings. There are then 2 rental properties which for income tax reasons are in W’s sole name. The couple have lived in both rental properties for a time during their ownership of them. The Wills have old NRB DT’s in them. Neither estate is over the taper threshold at the moment.
H’s estate (half share home plus cash) is less than the NRB so on his death, all assets potentially pass into the discretionary trust. Would his RNRB transfer to W in this situation? She would be able to make full use of 2 RNRB’s because of the value of one of the rental properties (assuming it is accepted as being a qualifying residence).
We assume that if the first spouse to die is H, his estate will be eligible for the ‘regular’ and not deemed RNRB. The aim must be to prevent the value of the survivor’s estate exceeding the RNRB threshold altogether. Inflation of the value of the survivor’s estate can be avoided by using the NRBDT in the Will of H, the first to die. The unused RNRB will be capable of transfer to the surviving spouse’s estate. (The RNRB has become responsible for a renewed interest in NRBDT Wills because it offers a way of reducing the value of the survivor’s estate while preserving the transferable RNRB of the first spouse to die. Here is what STEP said in its comment to the Government:
However, the fact that the RNRB is transferrable but the threshold of £2m is not is a retrograde step in that many families will now need to ensure that on the first death assets are diverted away from the surviving spouse, e.g. by using a nil rate band discretionary trust, in order to keep the surviving spouse’s estate within the threshold.)
If both parties survive past 5.4.2017, these principles will hold good. The rules for the first spouse to die are a bit more relaxed if they pass away before that date. The favourable outcome above will not apply to W if her estate exceeds the taper threshold. She could make a gift of excess value in property to H before death to pass the problem on, if he might have time to do something about it. Alternatively she could pass the asset to the children, since PETs are excluded from the calculation of the value of the estate for the purposes of ascertaining eligibility for the RNRB. One only looks at the value of the death estate.
(Perhaps I should add, I think this is right!)
Thackray Williams LLP
My, imperfect I’m sure, understanding was that the residence had to pass directly to linear descendants? Presumably this means it cannot form part of the NRBDT assets as it would then not pass directly; only non-qualifying assets in the NRBDT? I’m still unconvinced this legislation has been thought through!
STAR LEGAL LIMITED
The idea here is for the husband not to use his RNRB, but to ensure it can transfer to the wife. Husband will also ensure that he minimises the value of his estate passing to his wife so that, on her death, the value of her estate does not exceed the threshold and so she can use both her own and the husband’s transferred RNRB.
You are right about the legislation not being thought through, though.
Thackray Williams LLP