Transferable residence nil rate band calculation

I have the following scenario:

H died August 2019. He had surviving spouse (W2) and had previously been widowed (W1). We claimed transferable nil rate band and transferable residence nil rate band from W1’s estate - all wholly unused on her death. That gave H’s estate NRB of £650,000 and RNRB of £300,000.

W2 carried out variation gifting £200,000 cash and £350,000 half-share of property to son.

I have two questions on calculating the NRB and RNRB:

  1. If the total chargeable gifts to son in DoV are £550,000, can we apply those gifts to the NRBs available in any way or are they utilised in a particular order? For example, could we apply £150,000 of the gift of the property to the RNRB of £300,000 leaving £150,000 unused with £400,000 of the remaining gift applied to the NRB?

  2. The unused NRB on H’s death is based on the total available (including TNRB). IHTM43032 has an example of the calculation. If total NRB is £650,000 on H’s death and £400,000 used then percentage to apply to W2’s NRB is 38%. Is the calculation of the unused RNRB the same? Qs 16 to 22 of IHT436 indicate that the calculation is different. I have Default Allowance in box 16 as £300,000, say amount of RNRB used as £150,000. Box 18 is then £150,000 and box 20 then gives 100% so an increase in W2’s RNRB to £350,000.

I would welcome comments on above.

Samir Hussain

I think the answer to Q1 is “No” assuming I have correctly understood the facts.

In calculating the IHT on H’s estate, post the DoV executed by W2, any RNRB (including transfer) is first offset against H’s aggregate chargeable estate, not particular elements of it.

Thus, on W2 executing the DoV (ie cash gift and a property interest gift) totalling £550k, in calculating the IHT on H’s estate the £300k RNRB (including transfer) is first offset against £300k of H’s chargeable estate leaving no unused element of the RNRB. H’s NRB (including transfer) is then offset against the balancing £250k leaving £400k of unused NRB.

Malcolm Finney

I would have a look from here onwards as the nil rate bands need to be apportioned IHTM31015 - Inheritance Tax Manual - HMRC internal manual - GOV.UK ( Look at the section titled “Apportioning the nil-rate band/RNRB”

Kind Regards
Kim Jarvis