I have a situation where deceased gifted a property in Cyprus to one of his sons just over 3 years ago.
He had a business in the UK which was leased . He lived in rental accommodation in the UK
Could members advise me if they think downsizing allowance can be claimed
Many thanks
Collette
I am not aware that there is any geographic limitation to the location of the property – the essential ingredient is that the property “has been the person’s residence at a time when the person’s estate included that, or any other, interest in the dwelling-house” – s.8H(2) IHTA 1984.
Subject to meeting the other criteria to qualify, I suggest the estate will be entitled to claim down-sizing allowance
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Thank you Paul, I take it that the maximum that could be deducted would be the value of the property when it was gifted ? there is other commercial property in the UK
Collette
Yes, I understand down-sizing allowance is capped at the value of the property when it left the estate.
RNRB applies only to property which has been occupied by the deceased as a residence, so that commercial property will not qualify (other than in exceptional circumstances where it can be shown to have been the deceased’s residence at some time)
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Collette, i’m a little confused by your question and by Paul’s response. I have read your question to mean that the father made a lifetime gift of the property three years ago. As we know, RNRB only applies to the death estate and not to lifetime gifts within seven years of death. Maybe I have misunderstood the question.
Patrick Moroney
I refer to Patrick’s post of yesterday.
My understanding of the down-sizing provisions is that so long as the deceased had in their estate at some time on or after 8 July 2015 property in which they had a “qualifying residential interest” but which they no longer owned at their death then, provided that at least some of their estate on death was “closely inherited”, down-sizing relief may be available.
The disposal may be by way of gift (see IHTM46051), and there is no need for the assets which are closely inherited to have any connection to the property which has been disposed of (IHTM46052).
It would be lovely if RNRB could be laid to rest, although I suspect that even if it were to be repealed its ghost will continue to haunt us for many years
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I agree with Paul.
The term “downsizing” is misleading as it applies not only where an individual has literally downsized (ie sold one residence and moved to a smaller/cheaper residence) but where a residence has been sold without a further residence purchase (classically, following a move into a care home post or pre sale) (FA 2016 s 92 and Sch 15).
The downsizing addition therefore applies where there is, on or after 8 July 2015, a downsizing by the individual. Effectively, on death, an RNRB is available (equal to what it would have been at the time of downsizing) if the replacement property is inherited by direct descendants and assets equivalent to the shortfall are inherited by direct descendants (or where following sale there is no replacement property assets in the estate are inherited by direct descendants of the relevant amount).
In the present case a lifetime gift was made and no replacement property acquired. However, an RNRB is in principle available on death.
As Paul suggests, there is no geographical limitation as to a residence’s location.
A claim is necessary (ie it is not automatic).
Malcolm Finney
Folks I obviously have got this wrong somehow! What Paul and Malcolm are saying is that even though the deceased made a potentially exempt transfer three years ago of the property, his estate is still entitled to the residence nil rate band. I haven’t had a chance to look deeply into this but the following is an extract from what I found on the Prudential website: –
“When calculating IHT due on the estate, the RNRB is deducted from the value of the estate on death before deducting the general NRB. Unlike the general NRB, it does not apply to lifetime transfers made within seven years of the death. Therefore, the RNRB does not reduce the tax payable on lifetime transfers that are chargeable as a result of death. In other words, the RNRB is not taken into account when working out the tax due on the value of chargeable lifetime transfers or failed potentially exempt transfers.”
That to me is saying that the gift which the father made to his son three years ago does not qualify for the RNRB. Perhaps Paul or Malcolm will comment and put me right.
Patrick Moroney
Hi Patrick
My understanding is that the gift of the property potentially gives rise to 2 sets of IHT consequences.
Then first is the PET which, in the case in point is a failed PET. IHT will be payable on that gift on the donor’s death without any reduction by reference to RNRB, as you identify in your latest post.
However, if the deceased’s interest I the property was a “qualifying residential interest” and some part of the donor’s estate is “closely inherited” the donor’s estate may claim RNRB downsizing relief which will reduce the IHT payable from the estate (subject also to meeting the other qualifying criteria). The down-sizing relief will be the lesser of the value of the “qualifying residential interest” gifted and the value of the estate on death that is “closely inherited” (to clarify my earlier posting).
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
I agree with Paul. It is confusing that the RNRB does not apply to reduce IHT arising on lifetime gifts, but nevertheless an estate may benefit from downsizing allowance if the qualifying residential interest was gifted (or otherwise disposed of) post July 2015.
Charles Holbech published a detailed article on the RNRB a few years ago which I have often found a helpful answer to any questions. It should be easily found by a quick search of the web
Thank you Paul and Tobias. As you say It is a rather confusing piece of legislation which the sooner it is revoked and replaced with a simpler approach the better.
Patrick Moroney
I have found the RNRB legislation mind blowing and I’m not sure even now I’ve grasped all the issues.
As pointed out above the RNRB, unlike the NRB, is only offsettable against IHT arising on a deceased’s estate not lifetime gifts. It is also used in priority to the NRB [IHTA 1984 s 8D(3)].
Malcolm Finney
Malcolm I’m so glad that I am not the only user of this forum who finds what I initially thought was a straightforward relief but which has turned out to be somewhat illogical. Nevertheless it is helpful to have people like yourself, Paul and Tobias prepared to help us to try and understand the finer details of this legislation.
Patrick Moroney