A colleague of mine saw a client whose estate mainly consists of her house. She wishes to leave her residuary estate to her step children and her nephew and nieces. The nephews and nieces are not lineal descendants. Will she still qualify for the additional residential allowance or will it have to be apportioned between the qualifying beneficiaries and the non qualifying beneficiaries so that she will not obtain the benefit of the full allowance?
Colin Glass
Turbervilles
It will be apportioned.best to leave a specific gift of the residence up to the RNRB limit and split the residue as before, but with the gift being brought into hotchpot
Simon Northcott
HMRC says: “Where the home is included in the residue and that residue passes to a number of different people, HMRC treat each as inheriting a proportion of the home.”
https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band#inh-home
So if there were 2 step children and 3 nephews/nieces, 2/5ths of the value of the house would qualify as closely inherited. If the house were worth £250k or more, the full £100,000 allowance (assuming 2017/18 and no carry forward) would be available. Note that the RNRB is set against the entire estate so all beneficiaries will benefit from it.
If there was also carry forward of a £100k TRNRB, you would only be able to obtain the maximum if the property were worth £500k or more.
(this is subject to the caveat that I still find the legislation mostly impenetrable - lengthy exposure induces brainache - I’m not sure if this is good for the professions because far more executors will seek advice or bad because it will drive us all round the bend and lead to more uncomfortable conversations with insurers).
Andrew Goodman
Osborne Clarke LLP