RNRB & Gift with Reservation of Benefit

Trusts Discussion
1

I need some help trying to establish the IHT allowances for a client of mine.

Her husband died in 2018 and his Will transferred everything to the wife (my client) via simple mirror Wills. She is aged 62. In 2019, she was advised to transfer her main residence to her two adult sons for IHT planning purposes. She currently pays no market rent and therefore is a GROB.

I would like to understand the following:

  1. If she passed away today, would she get both the NRB and RNRB from her husband as well as her own NRB and RNRB? Her husband did not make any gifts 7 years prior to his death.

  2. The house is a 4 bedroom house and the sons live with her. Her accountant has now suggested that she pays rent for one room in the house and a share of the bills. Would this strategy work to avoid the GROB?

  3. If she successfully avoids the GROB rules, would she lose RNRB (both hers and her husband’s)?

I would be very grateful for some advice.

2

I believe that her estate would be entitled to both sets of NRB and RNRB. HMRC do not like the kind of arrangement that the acct. has mentioned. I do have a solution but I am not sure if I am allowed to ask you to contact my company ! In case it is ok my firm’s email is: info@portfoliocounsellingservices.com

3

  1. She would be entitled to a NRB and the transfer of her deceased husband’s unused NRB.

  2. On the basis that W’s lifetime gift gives rise to a GWR (as it appears it would), on W’s death her two sons would be treated as inheriting the property in which case W’s estate is entitled to a RNRB. Assuming on H’s death all of the RNRB available at that time was unused then on W’s death a transfer of H’s RNRB would be available.

  3. If W’s lifetime gift to her two sons did not give rise to a GWR then on W’s death her property would not be inherited. However, a full RNRB would be available if W satisfied the down-sizing provisions ie W leaves other assets of value £175k which are “closely inherited” (eg sons’ inherit). Assuming on H’s death all of the RNRB available at that time was unused then on W’s death a transfer of H’s RNRB would be available.

  4. If she literally occupies just one room and pays a market rent for it then possibly no GROB but presumably she has access to other parts of the house so not convinced a GROB would be avoided.

  5. If the original gift was a GWR but (say) today the reservation was released the release is a PET. If W dies more than 7 years later the PET would not be chargeable and no GWR issue arises on death. Re any RNRB and TRNRB see point 3 above.

If death occurred within 7 years of the PET would become chargeable. Re the RNRB and TRNRB see point 3 above.

Malcolm Finney