RNRB and property in sole name

Trusts Discussion
1

Good morning. I have a query and should be obliged to hear of any thoughts on this matter.

Mr A died in Oct 22 intestate.

Mrs A died in Sept 23 intestate.

They have one son. By virtue of the intestacies, the son will eventually inherit the entirety of the two estates.

LOA was issued to Mr A’s estate (to the administrators being Mrs A and son) within days of the death of Mrs A.

Mr A owned the family home in his sole name.

It is now necessary to prepare an IHT400 for Mrs A’s estate.

Can we claim RNRB in any way for either Mr A or Mrs A on her IHT400 given that no assets (including the family home) had been legally transferred to Mrs A by the time of her death?

If this is not possible, can a deed of variation or some other means (?) be used by the son (as one of the administrators of Mr A’s estate) to ‘give’ the property to Mrs A so that her estate can utilise both nil rate bands.

I should be grateful for any comments which you might have in this regard.

2

Yes, I’d have thought you’d get a residence nil-rate band and (if needed) a transferrable residence nil-rate band, on these facts. Indeed I’m struggling to work out where you think the problem lies. Surely neither the short length of time between the two deaths, nor the fact that Mr A’s estate was not fully administered, would affect the normal treatment? In that context I don’t see that a variation is needed, or how it could help.

3

Is the point that Mrs A had not owned a “qualifying residential interest” by the time she died and therefore there is no RNRB available to her estate? Whilst she may have been entitled to the whole of the estate of Mr A (subject to the intestacy rules on his death - the son may have been entitled to half of the residue), she does not immediately acquire a proprietary interest in the assets Mr A’s estate, unless or until the assets are either appropriated to her or the period of administration comes to an end (at which point the executors hold the assets on bare trust for the residuary beneficiaries / beneficiary). If that had not happened (it sounds like it had not), Mrs A had no QRI and therefore it would seem that no RNRB is available in respect of her estate. I would have thought, though, that a careful use of a Deed of Variation could resolve this, as two years have not yet passed since Mr A’s death.

There may be some nuance to the RNRB rules to get around this somewhat unnecessary difficulty, so it is worth checking the legislation and the HMRC manual.

Paul Davidoff
New Quadrant

4

@pddavidoff, if your conclusion is correct I feel sure you’d agree it does have a certain "the law is an ass"ness about it. Is there any authority for this?

5

1 Just before Mr A’s death he plainly had a QRI and the intestacy rules will, if the estate is large enough, give the son a half share in the estate net of statutory legacy,“closely inherited” if the house is in residue; this seems likely as presumably Mrs A lived in it until her death. So any NRB (subject to cumulation) or RNRB will benefit the son, perhaps permitting TNRB and TRNRB to go forward.

The QRI point is determined immediately before Mr A’s death. The CI point immediately afterwards. The statutory legacy of Mrs A may absorb the entire estate but if it does not the son’s half share in the surplus is chargeable and closely inherited and the rest is spouse exempt. A vested right to a share of residue is comprised in the estate of its legatee owner, notwithstanding the currency of the admin period or absence of an appropriation. But not if the house is specifically given to X or there turns out to be no residue. We are not told figures so I can’t be more precise. Half of the surplus could well be less than the default allowance.

2 On Mrs A’s death her entire estate is chargeable. The estate contains the house or rather only her share of it if the son inherited part in 1 above. Either of those is a QRI. So the estate is entitled to a NRB (assuming no cumulation) and a RNRB plus any of the two transferable per 1 above. The son inherits 100% of the estate but the RNRB may be limited if the QRI is less than the default allowance.

The QRI is based on what is in the estate, testate or intestate, just before death. Changes in its composition afterwards e.g a sale of the house or the s47A AEA entitlement do not affect it. The CI is indeed affected by how the estate is shared out. The statutory legacy on intestacy has the same effect as a pecuniary legacy in a testate estate. s8J(2) makes clear that an intestacy is within scope and what I have called “the surplus” is called “the residuary estate” in AEA and so must be equivalent to residue given by Will.

So I disagree with Paul if he is saying Mrs A does not have a QRI in her own estate just because of what happens after Mr A’s death. Immediately after that occurs, the question whether any part of the house becomes part of her estate is determined by the intestacy rules coupled with the total value of the estate. Unless the statutory legacy, £322,000 since 26 July 2023, swallows up the entire estate Mrs A will be entitled to half the residuary estate and the son to the other half. It does not matter when that calculation is finalised or whether the house is sold.

I do not therefore think that the law is an ass, as Andrew fears, which is as well because HMRC’s zoological analysis is likely to be just as self-serving as their route to their other settled positions on the law. It would have been helpful if the law had clarified what happens if Mr A’s administrators sold the relevant residence to pay debts, to meet the statutory legacy or to fulfil s47A, so that the son’s entitlement is received as a share of sale proceeds rather than of the house in specie. Mr A would have had a qualifying former residential interest if he had sold it in his lifetime and the son a downsizing addition merely by closely inheriting “at least part of the estate”: s8FB(5).

It would seem bizarre, veritably “assinine” (sic), if the executors could in effect wipe out RNRB for a QRI comprised in an estate by selling the property in the course of administration; so that because no part of it ultimately entered residue in specie it was arguably not closely inherited. Fortunately in IHTM46033 HMRC indicate that they do not subscribe to this nonsense, at least at the time of writing, so it is as bankable an assurance as any Manual view i…e. unless held to be wrong in Court or HMRC repent of their error with crocodile tears. We should be taxed by law not untaxed by Manual.

Jack Harper

6

Section 8H(2) IHTA might (although not definitely) resolve the issue, as it defines a “residential property ineterst” as follows:
“A “residential property interest”, in relation to a person, means an interest in a dwelling-house which has been the person’s residence at a time when the person’s estate included that, or any other, interest in the dwelling-house.”

If Mrs A is due to inherit the whole of Mr A’s estate under the intestacy rules on his death, it must surely be arguable that she does/did have a qualifying residential property interest. However, logically, it does seem to me to be questionable whether she does have that if the son is entitled to any of Mr A’s estate, if no action has been taken to allocate the property to Mrs A.

If no such action has been taken, then what is it that Mrs A “has”? Surely she has only a right to have Mr A’s estate administered and this will not necessarily result in her having a proprietary interest in the house. Indeed, it could be that even if any portion being allocated to the son under the intestacy rules on Mr A’s death is satisfied by way of a share of the property, Mrs A will still be entitled to receive at least enough of the property to use up the avaialble RNRB / TRNRB. I would like to think that HMRC would accept this.

Paul Davidoff

7

In Mr Ais intestacy Mrs A’s estate is entitled to what the son is not. If that includes any part of the house it is a QRI. As the son inherits 100% of her estate he has a CI. If after Mr A’s death but before her own the house is sold she has a QFRI and the son has a CI if he inherits any part of her estate let alone 100%. In neither case does it matter that the house is sold incourse of admintration post re;evant death.

Jack Harper

8

Good morning. Thank you for your detailed responses. To add some context, Mr A died in Nov 2022 when the stat legacy was £270,000.

Mrs A inherits £270,000, plus £30,000 chattels (sale proceeds of a car) and one half of the residue being another £145,000.

The property in Nov 2022 was £390,000.

Property in Sept 2023 was the same value.

Son inherits £145,000 from estate of Mr A.

Son inherits all of Mrs A’s estate (which is about £600,000).

As some of Mr A’s NRB was used on his death (£145,000 to son) his TNRB is only £180,000. Mrs A’s NRB is £325,000. Really need those RNRB’s to be able to reduce the potential liability.

9

I just wonder, did Mrs A reside in the property following her husband’s death? This is not mentioned and is fundamental to whether or not she had a QRI.

If she was in, say, a care home , she would have had no QRI.

Paul Saunders FCIB TEP

Independent Trust Consultant

Providing support and advice to fellow professionals

10

In his capacity as the sole beneficiary of the estate of Mrs A, can the son enter into a retrospective Deed of Variation to pass the entire estate of Mr A to Mrs A? That would give her estate a 100% transferable nil rate band.

Cliona O’Tuama

11

Hello.

Yes Mrs A was occupying property at the time of her death.

Many thanks

12

I’ve seen on a few occasions, especially with PPT trusts where lay executors do not change the name of the property on the first death to the sole survivor. It tends to be dealt with on the second death retrospectively.

Therefore I can’t see why you cant deal with Mr A now and of course RNRB from Mrs A would be available despite the probate of Mr A not being finalised.