RNRB and gifts made during lifetime

Trusts Discussion
1

I was wondering if anyone could help me with a RNRB question and gifts made by the deceased.

So as a quick summary the deceased leaves her estate to her two daughters in equal shares. This contains a couple of bank accounts with say £4,000 in and a property valued at £230,000. With debts of the estate the net value for IHT is £220,000. Estate has available NRB, RNRB and TRNRB. Not the TNRB that was used on husband’s death.

Deceased sold her previous property in March 2024 for £775,000, as such the full £350,000 of downsizing allowance is available.

The reason for the significant difference between the sale price and estate size is because deceased gifted her two daughters £250,000 each following the sale of the property. She’d also gifted them each £80,000 in 2021. So the estate has £648,000 of gifts, once yearly allowances are factored in.

The issue that arises is how to allocate the allowances. In completing the IHT forms I can use the RNRB and the TRNRB to reduce the net estate to £0 and then use the NRB against the total gifts of £648,000. But in using the RNRB and the TRNRB against the estate I’m losing £130,000 of allowance. Drafting the IHT forms they never allow me to use this £130,000 against the lifetime gifts even though the lifetime gifts were made following the sale of the property.

This doesn’t seem right, am I misapplying this? It feels like the deceased is being punished for gifting her daughters funds during her lifetime.

This feels especially wrong because had the gifts been GROBs then the £130,000 remainder of RNRB and TRNRB could be used against them. Which again, feels like the estate is being punished for doing a gift rather than a GROB.

If anyone has any insight on this I would love to hear it

2

I think you are applying it correctly. The RNRB/TRNRB can only be offset against IHT arising on death, not against IHT arising on a PET. (The NRB is used for the IHT on PETs.)

In this case it would have been advisable for the testator to retain £350,000 in her estate which would have been covered by the RNRB/TRNRB (downsizing) and then gifted the remainder. This would have saved the £130,000 allowances referred to.

Ihsan Ali
I Will Solicitors Ltd

3

You are always going to lose £130k of the downsizing allowance because the value of the estate that is closely inherited is only £220k and is limited to that.

Jack Harper

4

On the GROB point, as the gifts were of money including them in the estate would not be regarded as being property “inherited “ by the donee under s.8J(8). The “property” here means the property given in which the reservation subsists. It is not sufficient that the daughters inherit some part of the “estate” under s.8FB(5) because subs(2) is not satisfied: there IS a QRI in the estate. The downsizing allowance would still be limited to £220k.

But in any event it would be a strange argument that a taxable estate should be increased just so £130k of allowance could be set off and if the GROB value was greater it would be an own goal, of which my beloved Everton F.C. is eminently capable.

Jack Harper