IHT and the 'extra' exemption of the £175k 'uplift' - question please!

HappyHarry

CalJo99 said:

Well this is much better news!!  So I don't have to 'lock away' the £175k uplift in my family (ie, residential) home and if I sell it 'disappears' (I think I misunderstood the first reply, which on reading does say 'or proceeds from sale')

And yes, if I apply the £175k 'bonus' exemption to my residential home (which even after downsizing I doubt would be less than £175k these expensive days), then I'd still have all of my own £325k IHT exempt allowance to offset against whatever else I die owning (including a second home - eg, if I died without savings, but with a second home worth £325k)

Thank you - it just did seem innately unfair to say 'Here's another £175k exemption but you have to own a house worth £550k to get it, and then still pay out 40% on anything over that' rather than just giving you a 'pot' of £550k in the first place.

What is your position?

You own a property valued at £325,000.

What other assets do you own?

Are you married?

Do you have children?

Who does your will leave your estate to?

CalJo99

Yes, I agree - that is definitely unfair on those without children (or even those not wanting to leave stuff to their children, eg, if the children have treated them badly, but other relatives, or as in your case, godchild, hasn't.)

It really does call for a simple government decision to just say 'Everyone gets to leave £550k IHT free' end of.

bobster2

CalJo99 said:

Well this is much better news!!  So I don't have to 'lock away' the £175k uplift in my family (ie, residential) home and if I sell it 'disappears' (I think I misunderstood the first reply, which on reading does say 'or proceeds from sale')

And yes, if I apply the £175k 'bonus' exemption to my residential home (which even after downsizing I doubt would be less than £175k these expensive days), then I'd still have all of my own £325k IHT exempt allowance to offset against whatever else I die owning (including a second home - eg, if I died without savings, but with a second home worth £325k)

Thank you - it just did seem innately unfair to say 'Here's another £175k exemption but you have to own a house worth £550k to get it, and then still pay out 40% on anything over that' rather than just giving you a 'pot' of £550k in the first place.

It's a bit hard to understand how you think the RNRB works. There's guidance here...

https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band

bobster2

poppystar said:

It’s still a tad unfair IMO as I can’t leave my home to a young person like my godson and claim the allowance because I have no children of my own. It becomes a tax on infertility in our pronatalist society. 

The younger people I will leave bequests too will only receive them after 40% tax deducted  so will get considerably less. Unless I give a helping hand to them before my death. 

As well as "lineal descendants",  the RNRB can apply when property is left to...

• a child who is, or was at any time, their step-child

• their adopted child

• a child fostered at any time by them

• a child where they’re appointed as a guardian or special guardian when the child is under 18

CalJo99

If the home is worth less than the maximum available residence nil rate band, you cannot set the unused amount against the other assets in the estate.
**

Does HMRC, quoted above from the link above, mean that if the home is worth less than the £175k uplift then that £175k can't be used against other assets in the estate, or does it mean that if the home is worth less than the £325 personal exemption PLUS the £175k 'uplift'?

I am still trying to work out that IF I sell my main residence (Aworth over half a million) and downsize to something worse at least £175k less, that I then lose that £175k extra exemption to use against other assets.

As I say, it would be SO much simpler and tidier if the total exemption were just raised to £550k (ie, £326 current plus £175 uplift) on all assets, end of, irrespective of owning houses, selling houses, downsizing, going into care or rental etc etc etc.

poppystar

CalJo99 said:

If the home is worth less than the maximum available residence nil rate band, you cannot set the unused amount against the other assets in the estate.
**

Does HMRC, quoted above from the link above, mean that if the home is worth less than the £175k uplift then that £175k can't be used against other assets in the estate, or does it mean that if the home is worth less than the £325 personal exemption PLUS the £175k 'uplift'?

I am still trying to work out that IF I sell my main residence (Aworth over half a million) and downsize to something worse at least £175k less, that I then lose that £175k extra exemption to use against other assets.

As I say, it would be SO much simpler and tidier if the total exemption were just raised to £550k (ie, £326 current plus £175 uplift) on all assets, end of, irrespective of owning houses, selling houses, downsizing, going into care or rental etc etc etc.

I’m not sure what you are thinking you would lose? House @£500k now - you can claim £175k RNRB. Downsize to something £175k less (£325k) then you can still use the same RNRB. How are you losing anything to use against other assets? 

Maybe better to think of it as you have a £175k RNRB allowance as long as your residence is worth more that or more. Then you still have the £325k NRB to use on your estate. If you have downsized to a property valued at less than £175k, as others have mentioned, it may still be possible to use the allowance. It doesn’t sound though that you are likely to do that anyway? 

bobster2

CalJo99 said:

If the home is worth less than the maximum available residence nil rate band, you cannot set the unused amount against the other assets in the estate.
**

Does HMRC, quoted above from the link above, mean that if the home is worth less than the £175k uplift then that £175k can't be used against other assets in the estate, or does it mean that if the home is worth less than the £325 personal exemption PLUS the £175k 'uplift'?

I am still trying to work out that IF I sell my main residence (Aworth over half a million) and downsize to something worse at least £175k less, that I then lose that £175k extra exemption to use against other assets.

As I say, it would be SO much simpler and tidier if the total exemption were just raised to £550k (ie, £326 current plus £175 uplift) on all assets, end of, irrespective of owning houses, selling houses, downsizing, going into care or rental etc etc etc.

You are less likely to get in a muddle if you stop thinking of the RNRB as an "uplift" or "bonus".

In normal circumstances - if the home is worth <175k you cannot use the full RNRB. E.g. if you have a home worth 150k - the tax free allowance would be 150k + the NRB (325k).

However, in the unlikely event that you have a home worth <175k through downsizing it may still be possible to use the full RNRB.

https://www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold

But 325 + 175 = 500 not 550.

theoretica

CalJo99 said:

Yes, I agree - that is definitely unfair on those without children (or even those not wanting to leave stuff to their children, eg, if the children have treated them badly, but other relatives, or as in your case, godchild, hasn't.)

It really does call for a simple government decision to just say 'Everyone gets to leave £550k IHT free' end of.

I don't see it as unfair to people without children - because they will be dead.  It is unfair to people without well off parents/grandparents.

CalJo99

Thank you for all the answers - I think I was worried that our 'normal' £325k exempt allowance HAD to be used first on a main home, and the main home also HAD to be applied to the £175k extra.

Still seems simpler though for the government just to have a flat rate £235+175 = £550k exemption. 

CalJo99

 don't see it as unfair to people without children - because they will be dead.  It is unfair to people without well off parents/grandparents
**

Unfair not to be able to leave one's money to whom one likes, irrespective of kinship! 

As for unfair to those without well off kin, ah well, that's a huge question of political economics......will Homo Sap ever crack that one to the happiness of all?????????????????