IHT Nil Rate Band question

HornetUK88

My father died last year and left his half of the house to me - probate value of house was £580k.  So £290k to me.

My mother died recently and my solicitor has said Mum only receives £290k of the Nil Rate band.  As that is what her half is worth.

Why do we lose the other £60,000 of the Nil rate band? Shouldn't that be applied to the half I inherited last year?

Thanks for any help. 

DRS1

Why does she get £290k?  Shouldn't it be £210k?  £500k - £290K.

We are talking about NRB and RNRB being transferred from him to her aren't we?

She has her own NRB and RNRB on top

HornetUK88

The 325k times two has all been used on other assets. 

It's the RNRB I am not sure about as it's been capped at the value of mums half of the house £290k, I don't understand where the £60k went as surely my dad's 175k RNRB would be in full on his half of house?  Or am I totally misunderstanding how RNRB works?

Thanks 

Keep_pedalling

Did your fathers will give your mother the right to remain in the property? If it did (and this would be the normal approach) then you don’t own 1/2 the house, legal ownership would have gone into a immediate post death interest trust and you mother would have beneficial ownership. You would be classed as the remainderman and would receive your inheritance on her death. 

If the above is the case, then the bequest would be covered by spousal exemption and the whole house would form part of her estate. None of your father’s NRB would be used so your mother’s estate would be able to claim the full transferable NRB so would have £650k of NRB exemptions in total and if needed 2 x residential NRB as well giving £1M in total.

if your father actually left you half the house outright then things will be somewhat different. The house would use up £290k of his NRB leaving only £35k transferable to your mother’s estate but her NRB is not effected so she will have £360k NRB exemptions although only 1/2 the house falls into her estate. The transferable NRB is still available which adds a further £290k of exemptions (this is limited by the value of her share of the home. 

DRS1

Keep_pedalling said:

Did your fathers will give your mother the right to remain in the property? If it did (and this would be the normal approach) then you don’t own 1/2 the house, legal ownership would have gone into a immediate post death interest trust and you mother would have beneficial ownership. You would be classed as the remainderman and would receive your inheritance on her death. 

If the above is the case, then the bequest would be covered by spousal exemption and the whole house would form part of her estate. None of your father’s NRB would be used so your mother’s estate would be able to claim the full transferable NRB so would have £650k of NRB exemptions in total and if needed 2 x residential NRB as well giving £1M in total.

if your father actually left you half the house outright then things will be somewhat different. The house would use up £290k of his NRB leaving only £35k transferable to your mother’s estate but her NRB is not effected so she will have £360k NRB exemptions although only 1/2 the house falls into her estate. The transferable NRB is still available which adds a further £290k of exemptions (this is limited by the value of her share of the home. 

OK This bit I do not understand.

On the father's death he has both NRB and RNRB available.  So a total of £500k.  You use the RNRB first.  So that is £175k set against the £290k part of the house left to the son.  The rest of the value of the house is set against the father's NRB leaving £210k to be transferred to the mother.

You seem to be saying none of the RNRB is used on the father's death and is transferred to the mother where the aggregate RNRBs are limited by the value of her half of the house.

I have obviously missed something here.

Keep_pedalling

DRS1 said:

Keep_pedalling said:

Did your fathers will give your mother the right to remain in the property? If it did (and this would be the normal approach) then you don’t own 1/2 the house, legal ownership would have gone into a immediate post death interest trust and you mother would have beneficial ownership. You would be classed as the remainderman and would receive your inheritance on her death. 

If the above is the case, then the bequest would be covered by spousal exemption and the whole house would form part of her estate. None of your father’s NRB would be used so your mother’s estate would be able to claim the full transferable NRB so would have £650k of NRB exemptions in total and if needed 2 x residential NRB as well giving £1M in total.

if your father actually left you half the house outright then things will be somewhat different. The house would use up £290k of his NRB leaving only £35k transferable to your mother’s estate but her NRB is not effected so she will have £360k NRB exemptions although only 1/2 the house falls into her estate. The transferable NRB is still available which adds a further £290k of exemptions (this is limited by the value of her share of the home. 

OK This bit I do not understand.

On the father's death he has both NRB and RNRB available.  So a total of £500k.  You use the RNRB first.  So that is £175k set against the £290k part of the house left to the son.  The rest of the value of the house is set against the father's NRB leaving £210k to be transferred to the mother.

You seem to be saying none of the RNRB is used on the father's death and is transferred to the mother where the aggregate RNRBs are limited by the value of her half of the house.

I have obviously missed something here.

The RNRB is only usable if you have already used up all the standard NRB. They have to be done in that order. If this will really did not go down the IPDI trust route then it was a poorly drafted will. Apart from the issue of the loss of some of the RNRB there are several other issues with doing it this way including a potential CGT liability for the beneficiary, although that may not be an issue here as the deaths were close together. 

DRS1

Keep_pedalling said:

DRS1 said:

Keep_pedalling said:

Did your fathers will give your mother the right to remain in the property? If it did (and this would be the normal approach) then you don’t own 1/2 the house, legal ownership would have gone into a immediate post death interest trust and you mother would have beneficial ownership. You would be classed as the remainderman and would receive your inheritance on her death. 

If the above is the case, then the bequest would be covered by spousal exemption and the whole house would form part of her estate. None of your father’s NRB would be used so your mother’s estate would be able to claim the full transferable NRB so would have £650k of NRB exemptions in total and if needed 2 x residential NRB as well giving £1M in total.

if your father actually left you half the house outright then things will be somewhat different. The house would use up £290k of his NRB leaving only £35k transferable to your mother’s estate but her NRB is not effected so she will have £360k NRB exemptions although only 1/2 the house falls into her estate. The transferable NRB is still available which adds a further £290k of exemptions (this is limited by the value of her share of the home. 

OK This bit I do not understand.

On the father's death he has both NRB and RNRB available.  So a total of £500k.  You use the RNRB first.  So that is £175k set against the £290k part of the house left to the son.  The rest of the value of the house is set against the father's NRB leaving £210k to be transferred to the mother.

You seem to be saying none of the RNRB is used on the father's death and is transferred to the mother where the aggregate RNRBs are limited by the value of her half of the house.

I have obviously missed something here.

The RNRB is only usable if you have already used up all the standard NRB. They have to be done in that order. If this will really did not go down the IPDI trust route then it was a poorly drafted will. Apart from the issue of the loss of some of the RNRB there are several other issues with doing it this way including a potential CGT liability for the beneficiary, although that may not be an issue here as the deaths were close together. 

Oh.  I found this in an M&G note which made me think it was the other way round

"How does the RNRB interact with the standard NRB?

When calculating IHT due on the estate, the RNRB is deducted from the value of the estate on death before deducting the general NRB. Unlike the general NRB, it does not apply to lifetime transfers made within seven years of the death. Therefore, the RNRB does not reduce the tax payable on lifetime transfers that are chargeable as a result of death. In other words, the RNRB is not taken into account when working out the tax due on the value of chargeable lifetime transfers or failed potentially exempt transfers.

Example showing the RNRB being deducted before the general NRB

Anthony dies in a tax year between 2020/21 to 2029/30 inclusive with an estate valued at £490,000 which is left to his children.

Estate £490,000

RNRB (£175,000)

  £315,000

NRB (£315,000)

Taxable Nil

Note that £10,000/£325,000 of the NRB remains unused and could be transferred to Anthony’s spouse or civil partner.

Note also that the RNRB applies to the entire estate on death. It is not an exemption or relief on the home itself, but instead reduces the total IHT charge on death."

I also found this in an IHT form (Schedule IHT 435)

"Residence nil rate band (RNRB) is an extra amount that can

pass on death without any Inheritance Tax being payable. 

It’s applied before the nil rate band (NRB) and any transferable

nil rate band (TNRB) applicable when the death occurred."

DRS1

Perhaps it would have been better for me to link these examples from Gov.uk

IHTM46070 - Applying the RNRB to the estate: examples - HMRC internal manual - GOV.UK

Keep_pedalling

DRS1 said:

Perhaps it would have been better for me to link these examples from Gov.uk

IHTM46070 - Applying the RNRB to the estate: examples - HMRC internal manual - GOV.UK

Thank you, it seems I have that wrong and you can claim the RNRB before applying the NRB so apologies for that. To do that however requires the executor to complete a full IHT return before applying for probate as it is the only way you can claim the RNRB. Not sure if that can be done if you have applied for and been granted probate already.

badger09

Having just read this & the Inheritance Tax New Rules thread, I realise that I need paid professional advice on updating my will, for various reasons. And IHT planning. 

I thought I had a good understanding of IHT but now I’m not so sure. 
(retired Snr Inspector of Taxes but not my area of expertise🤯)

Albermarle

badger09 said:

Having just read this & the Inheritance Tax New Rules thread, I realise that I need paid professional advice on updating my will, for various reasons. And IHT planning. 

I thought I had a good understanding of IHT but now I’m not so sure. 
(retired Snr Inspector of Taxes but not my area of expertise🤯)

A lot of issues we see on here are related to people either giving away their home whilst still alive, or as it seems in this case leaving half the home to someone other than the spouse in their will. Or some other complication like needlessly setting up discretionary trusts etc ( Not saying all trusts are always to be avoided)
If you avoid these things, then it is easier to understand/deal with for you/your spouse/your executor.