Property nil rate band

Dave2345

Does anyone have any experience of transferring the property nil rate band?

it’s my understanding that I can transfer my mothers unused property nil rate band now my fathers passed. My father had remarried but my mother’s allowances hadn’t been used as it all passed to my father before he remarried. 

Because my mother passed  prior to 2017 it is capped at £100k taking me to a total of £275k. 

I’ve also read on gov.co.uk if a home is passing to a direct descendant it can increase to £500k. Sorry I’ve had to take the links out. 

Any advice much appreciated. 

Inheritance tax, passing on a home

 

Passing on a home

You can pass a home to your husband, wife or civil partner when you die. There’s no Inheritance Tax to pay if you do this.

If you leave the home to another person in your will it counts towards the value of the estate

If you own your home (or a share in it) your tax free allowance can increase to £500,000 if:

• you leave it to your children (including adopted, foster or stepchildren) or grandchildren

Keep_pedalling

You are correct it can be transfered to your father’s estate, but incorrect amount the amount it is the full £175k. Do you actually need to use it though? Using either of the RNRBs will only be needed if the part of his estate left to beneficiaries other than his wife exceeds £650k. Anything rest to his wife or left to others with his wife being given a life interest is covered by spousal exemption so does not use up any of his NRB or transferable NRB from your mother.

So if he has left his wife a life interest in their home you can’t claim either his or your mother’s RNRB but it is exempt from IHT as she will be the beneficial owner (legal ownership is in trust until her death) so the exemption won’t be needed anyway. The house would form part of her estate and your father’s RNRB can be transferred to her estate.

What is the value of your father’s estate? What provisions has he made for his wife?

Dave2345

Thanks for the reply.

The house is in excess of £650k, it’s a 50/50 split for both of us, the house is to be held in a trust until his wife finds another house to live in. Once probate is granted she has says she wants to move asap. Any other assets will below the £325k allowance.

This is what the gov.co.uk page states:
Where the first of the couple died before 6 April 2017 their estate would not have used any of the residence nil rate band as it was not available. 

If the person died before 6 April 2017 the unused residence nil rate band and total available are both deemed to be £100,000 so the unused percentage is 100%.

I’m hoping more that the passing on a home will apply as I will be totally covered by that and IHT free

Passing on a home

You can pass a home to your husband, wife or civil partner when you die. There’s no Inheritance Tax to pay if you do this.

If you leave the home to another person in your will it counts towards the value of the estate

If you own your home (or a share in it) your tax free allowance can increase to £500,000 if:

• you leave it to your children (including adopted, foster or stepchildren) or grandchildren

Keep_pedalling

Is sounds like his estate has the full £1M of exemptions available to it but just to check what is the exact wording regarding the trust In the will, redacting personal info?

Dave2345

It says his wife has 3 years in the house if needed then it has to be sold with a 50/50 split. It has to suitably maintained during that period and kept dept free if it isn’t then the trust lapses. 

Owing to the size she can’t afford to run it and it’s too remote so doesn’t want to be there on her own. 

mattojgb

Inheritance tax liability will arise on the sale. If a trust asset leaves the trust within 7 years of death (whilst the remaining spouse is still living) then inheritance tax will be due. Remaining spouses part will not form part of IHT calculation.

Your original question refers only to your mother's PROPERTY nil rate band ? Was any of the standard non-property NRB used on your mother's death? Same for your father - although you mention there are assets less than £325k - any of that not used can be used to offset property liability. If none of the NRB amounts have been used you shouldn't have to pay any tax as long as the property is less than £2 million. Your mother's total allowance would be £425k and your father's £500k. You would have to deduct from those totals any assets not left to a spouse on death up to £325k each.

RAS

@Dave2345

K_p asked you for the exact wording of that part of the will? Not a precis or paraphrase. 

Until you supply that with some basic figures, like value of the house (nearest 50k) and of any other assets left to you, it's not possible to give clear advice. 

Dave2345

Thanks for the help so far. 

The property is worth approx  £700k. No nil rate allowances have been used from my mother who died pre 1986 or from my father until this event.

The will states: 

I give whatever I hold as my principle residence to to hold in trust as follows. 

50/50 split between my son and wife. 

If the property is the wife’s principle residence no sale can take place within 36 months with wife’s written consent. 

If the property is the wife’s principal residence trustees shall allow wife to live rent free until contracts have been exchanged on the property. 

Keep_pedalling

I have to confess I don’t understand what sort of trust that will wording creates and it looks a little like a DIY will to me. My advice is to take professional advice on this one.

One thing I do know though is that you are not going to need your mother’s transferable RNRB and you may not need his either.

Half the house goes to his wife so that is covered by spousal exemption, his son gets the other half (£350k) + the other half assets (<£325k) and if that total does not exceed £650k then the entire amount is covered by his and your mother’s NRB and neither RNRBs will be needed (which avoids having to do an IHT return). If it is a bit over the £650 mark you will need to use a portion oh his RNRB to avoid IHT. 

mattojgb

Agree you need proper advice on dealing with this. The trust wording does not appear to create a life interest. If the estate is left to the trust and not a spouse or a life interest trust, then spousal exemption may not apply and IHT would be due based on the full value of the estate - taking account of the NRBs - but note also that as it is left to the trust not a child or grandchild, then there would be no nil rate property band to use.

You may be able to execute a deed of variation to create a life interest trust, although given the wife does not want to live there it may be more straightforward to sell within two years and take advantage of some of the benefits of doing so (IHT may need to be paid but a portion may be refunded if the proceeds of the trust pass to the spouse within 2 years). You need to consider CGT as well as IHT (and possibly income tax) in considering how best to proceed.

Are any trustees named?

Dave2345

Thank you both for this advice. 

This was a professionally drawn up will by a local solicitors and the wording above is as per the will. 

The trustees are named as the solicitors and the executor who was a friend of my father. It doesn’t say what happens if his wife is still there at 36 months just no sale can take place within 36 months without her written consent. I guess at that point her consent is not needed but will the trustees still have overall control?

We’ve just had a quote from the solicitors to complete probate and the IHT side of things which I suspect will be what happens as it does seem a bit of a minefield from reading through the forms and help guide on gov.co.uk. For them to complete the work is £15k inc vat. 

I was really trying to get an understanding of what my situation/tax liabilities may be.