Advice regarding IHT thresholds and allowances.

Fly_Guy

I wonder if I can check with the accumulated wisdom of the board to be sure I properly understand the IHT will rate band process.
The situation is - Dad died in August 2013 passing everything to mum. Mum dies in Jan 2021 passing everything to her/their children [my sister and me]. Estate worth <£2m

If I understand correctly Dads personal allowance and residence nill rate band allowance [if applicable] passes on to Mum but it isn't 'used' as transfers between spouses which don't count for IHT. This means that we can apply both Dads and Mums personal allowance and their residence will rate bands now that the estate passes down a generation.

In Jan 2021 Mums personal allowance was £325k and the residential will rate band was £150k. 
In Aug 2013 Dads personal allowance was also £325k. BUT the residential will rate band hadn't been introduced.
Which would suggest that the total available would be £325k + £325k + £150k = £800k

However I have found this online: 
"It is the unused percentage of the RNRB from the estate of the first to die which can be claimed on the second death. This is irrespective of when the first death occurred or whether they owned residential property at their death. There will always be an additional 100% RNRB unless the first spouse's estate was greater than £2M."

So does this mean that we can claim another £150k of residential Nill Rate band for Dad even though it wasn't a thing when he died ? 
Making the total allowance before having to pay IHT £325k + £150k (Mum) + £325k + £150k (Dad) = £950k

Thanks... 

naedanger

Yes, except the RNRB is now £175k so the total allowance is £1m = (£325k + £175k)*2

Keep_pedalling

Yes it does not matter when the first spouse died, you can still claim the transferable RNRB.The RNRB is now £175k so you have £1M exempt if the estate is equal to or less than £2M, estates over that the RNRB it is reduced by £1 for every £2 the estate exceeds £2M.

Fly_Guy

Many thanks, I mis read the dates the RNRB is being phased in over... so financial year 2020/21 is already £175k
Which would make the total IHT exempt allowance in the above sample 2x325 + 2x175 = 1000k
Well thats good news....  

WaywardDriver

Please correct me if I'm wrong but is the RNRB on 2nd death not the minimum of 2*175=350 and the actual house value?

naedanger

WaywardDriver said:

Please correct me if I'm wrong but is the RNRB on 2nd death not the minimum of 2*175=350 and the actual house value?

In the circumstance the op describes, there has to be a residence passing on the second death to a descendent, and the allowance is limited to the value of the property (or possibly a higher amount if the property was downsized).

Fly_Guy

Yes, in this case the property is worth around £500k and is passing down to my sister and myself. The rest of the estate is around £400k so without Dads RNRB we would have been paying some IHT. 

WaywardDriver

Fly_Guy said:

Yes, in this case the property is worth around £500k and is passing down to my sister and myself. The rest of the estate is around £400k so without Dads RNRB we would have been paying some IHT. 

So RNRB = minimum(350, 500) = 350 and estate for IHT = 500+400 - (350+650) < 0 so no IHT due as stated.