Downsizing residence nil rate band

slb2020

Suppose a married couple own a house as joint tenants. They sell this house for £500,000 and buy another house for £300,000. The remaining £200,000 is split between the two of them and put into personal accounts.

On the subsequent death of one of the owners, the second house passes to the surviving spouse and so is outside the estate. Is it sufficiently outside the estate to avoid the 'grossing up' rules?

£100,000 from the first house is part of the estate (and the estate is left to the children, not the spouse). Can the downsizing residence nil rate band be claimed in this case or does the face that that house was owned as a joint tenancy prevent this?

poppystar

Do you need to use it on the first death anyway? If only £100000 goes to the children at that point and the remainder goes to the spouse then there would be no IHT payable on first death.

You may need to use it on the death of the second spouse although they will have their own allowances plus the NRB of the first spouse to die less whatever went to the children or otherwise not to the spouse at that point. So if only £100k goes to non spouse on first death then even without the residential NRB they will have a total allowance of £325k plus £225k (325-100) plus their own residential NRB. 

Keep_pedalling

The £100k given to the children will use up part one the transferable NRB, the residential won’t be touched by your first death.

The estate of the second to die would both sets of RNRB available their own NRB plus £225k of unused transferable NRB giving a total of £900k of exemptions.  

slb2020

"Do you need to use it on the first death anyway? If only £100000 goes to the children at that point and the remainder goes to the spouse then there would be no IHT payable on first death"

In this case, there are other assets in the estate, again left to the children not the spouse, and these use up the £325.000 allowance almost exactly. So the availability of the RNRB makes a huge difference to the amount of tax due.

A further complication is this: the surviving owner thought that both houses were owned as tenants in common (and their Wills were written in the expectation of common tenancy) but does not have documentation confirming this status. The solicitor who handled the purchase of the second house has has told us that it is a joint tenancy.

In the case of the first house, how do we tell its status? We could get the title register document but as I understand it, the restriction indicating common tenancy is removed from the register when the property is sold. How do you identify the restrictions that were present before a house was sold?

Keep_pedalling

How they owned the sold house makes no difference to the ability to claim the RNRB, The same is true of the current home. The only qualification for being able to use the TNRB is that it was not fully used on the death of the first spouse.

Even if the first spouse died years before the introduction of the RNRB and never owned a house it is still claimable if the second spouse dies owning a house with a value over £175k (or can use the downsizing rules).