I have a situation where clients owned a large property which they sold for over £500,000 at the beginning of 2016.
They moved to a much smaller property which is now worth about £250,000. Husband died 2018. I am fine with possibility of downsizing thus far.
I have now been advised that surviving W has to move into residential care and the smaller property will now be sold.
Has anyone come across this situation or is able to comment on what may be claimed when W dies? I would have thought we would only be able to claim downsizing against the smaller property but am struggling to wade through the guidance.
When someone sells or gives away (disposes of) a former home so that there’s no longer any home in their estate when they die, the RNRB for the estate will be equal to the downsizing addition for the former home.
If someone downsized but had never lived in the less valuable property, that property is not a home for additional threshold purpose. This means that the position is the same as if the former home had been sold or given away.
You calculate the downsizing allowance in these situations slightly differently because there’s no home in the estate that could qualify for any RNRB.
When you work out the lost RNRB, the percentage at step 3 will always be 0% and the result at step 4 will always be the same as the figure at step 2. So, you can miss out steps 3 and 4.
The amount of lost RNRB will depend on what the former property was worth, and the maximum RNRB at the time of the disposal. Again, if the sale took place on or after 8 July 2015 but before 6 April 2017, you treat the maximum RNRB available as £100,000.
I’m not sure it’s possible to provide an answer to the question posed ie “what may be claimed when W dies?”.
We do not know the size of W’s estate on death (as W is still alive); whether at the date of death her downsized property will be comprised in her estate (as yet property not sold); the contents of W’s will; whether W on death is entitled to a RNRB transfer from H’s estate; etc.
Following my earlier post if I make the following assumptions:
House sold in 2016 for say 575k.
Husband didn’t use any of his RNRB.
House sold in 2016 held 50/50.
Downsized property 100% owned by W sold prior to her death whilst in care home.
Step 1
At date of disposal (2016) RNRB which would have been available is her “former allowance” which is “residential enhancement” in 2016 (ie 100k) plus “transferred RNRB available at date of W’s death” (H used none of his RNRB and therefore at W’s death transferred RNRB is 100% of 175k)
gives [100k + 175k = 275k].
S2
W’s interest in home sold in 2016 was 50% of 575k ie 287.5k
This gives a % figure of [287.5k/275k] ie 104% which is limited to 100%.
S3
“Lower receivable amount” (LRA) is therefore 100% of W’s “default allowance” ie 100% of [175k + 175k] which gives 350k.
At W’s death no property is owned and hence RNRB is nil.
“Downside Allowance” equals lower of LRA (ie 350k) and “amount of W’s assets directly inherited”, say, 300k (all closely inherited).
Therefore RNRB available against W’s estate for IHT is 300k.
If, however, estate amounted to say 400k all closely inherited then RNRB for offset in W’s estate would be 350k.
Going back on this thread for a situation I am looking at. Client is downsizing and eligible for 100% relief. Happy with that (won’t own a property but will leave estate to children).
Estate with property is more than £2m (husband and wife - spouse to spouse on first death).
Do I have to consider restricting the amount of RNRB that ‘would’ have been available, ie restricted is for the excess over £2m and use that as my base figure for the calculations?
Once property sold, and cash gifted (PET), then estate will be below £1m at death (2nd) so there would normally be no restriction.
But is it not the case that on death where the deceased possessed no QRI [IHTA 1984 s 8FE(10)] in ascertaining any Lost Relievable Amount the quantum of the “adjusted allowance” is equal to [residential enhancement at date of property disposal + any transferred RNRB (if any)] less [50% x [Estate - £2m]].
My problem is working out what the residential enhancement at date of property disposal was. Is it the factual figure of £175,000 or the restricted figure, because his estate exceeded £2m at that time.
Hi Lucy
I’ve had a quick look at the legislation but struggling !
I can’t convince myself that the residential enhancement at the date of the property disposal should be other than the factual figure of £175,000 irrespective of whether the estate exceeded £2m at that time or not.
Thanks Malcolm,
Had a talk with Lesley King this week and we discussed the same. Her take is that we look at what would be available at the time of sale and this is the restricted amount. Otherwise, he is benefiting from an increased allowance due to the downsizing provisions. whereas her take is that he shouldn’t be worse off because of the sale. Which makes sense…
Under ss8FE(9) and 8FE(10) “Step 1” requires ascertaining the RNRB which would have been available at date of disposal of the previous property which is the “former allowance” ie residential enhancement plus any transferred RNRB (available at date of death). Are you saying Lesley King is saying that this is then reduced if at the date of disposal the estate exceeds £2 million?
yes. because if they’d died at that point, the RNRB would be restricted and so because the estate has decreased following the sale, they are not benefiting from something which they wouldn’t otherwise be entitled to…