Residence nil rate band where deceased does not own residence

Trusts Discussion
1

I haven’t come across this before and whilst I think I know the answer, I would be interested to hear from others.
A and her late spouse B gifted their home (£350,000) to their children in 2015 but continued to reside there. B died in 2019 and A died very recently and has left in an estate in the region of £600,000. Obviously the gift of the home was a gift with reservation of benefit. The value of the house has increased by about £50,000 since 2015. A half share will therefore form part of the taxable estate of A . Whilst I have not had a chance to delve into the rules, logically, it would seem to me that notwithstanding the fact that A no longer owned the property, her estate should still be entitled to her RNRB and the TRNRB from B. However the value of A’s half share is about £200,000 so that would mean that £150,000 of RNRB is unused! Am I right? When B died, no IHT account was submitted as probate was not required to deal with other assets which passed to A. As his gift was one with reservation, I believe I am correct in saying that an IHT 400 should have been submitted so that this will necessitate having a valuation of his one half share made at his date of death to determine what percentage of his NRB was used.
All of this has come about because the solicitor who advised the family at the time did not explain the consequences, probably because he did not know! The children are aware that there will be a CGT issue to be dealt with when they sell and I have suggested that they bring their spouses on board. Are there any other issues that I need to be aware of? Do the children have grounds for making a complaint against the solicitor if the estate ends up paying IHT whereas if the property had not been gifted, A’s estate would have had the benefit of RNRB + NRB x 2 (£1million) and no tax to pay.

Patrick Moroney

2

Each gift by A and B of their respective interest in the matrimonial home is a gift with reservation and thus each gift falls into the estate of the donor on death. On B’s death his former interest in the home is treated as being inherited by his children who are lineal descendants and thus his estate is entitled to a RNRB. Whether this will be fully, partly or not used at all will depend upon the figures. This will dictate whether there is any TRNRB from B to A on the latter’s death.

Similarly, on A’s death A’s estate is entitled to a RNRB (as was B’s estate) plus possibly a TRNRB from B’s estate.

If on B’s death his interest in the GWR is valued at, say, 50% x £375k [£187,500], then irrespective of the value of the balance of B’s estate his RNRB of £150,000 will be fully utilised. Hence, there will be no TRNRB available to A.

The childrens’ base cost for CGT is the value of the property at the date of the gift (with reservation). As presumably the children haven’t lived in the property gifted no private residence relief will apply on disposal.

IHT 400 is required if the deceased died on or after 18 March 1986, and there’s Inheritance Tax to pay [or there’s no Inheritance Tax to pay, but the estate does not qualify as an excepted estate. An estate can’t qualify as an excepted estate where a GWR was made and continued until death].

Malcolm Finney

3

Thank you Malcolm for your clear and helpful guidance.

Patrick Moroney