Inheritance Tax - confused about reliefs

[wanderer]

Hi all,

My sister is keen to understand how near or far she is from leaving behind a big IHT bill. I am executor of the will, so I am also interested. I have been trying to understand the rules as they apply to lifetime allowance transfers and have been getting myself tied up in knots. I am going to tell her to get professional advice, but before I do I would really appreciate any fresh thinking/perspectives that could be offered here as I have got myself very confused and may have already said the wrong thing informally to her. The situation is as follows:

Husband died in November 2009. The Nil Rate Band was £325k at the time, but no Residence Nil Rate Band applied as death was prior to 2017. The only asset in the estate was a 50% share of the main residence where he lived with his wife and this was willed to his wife. Probate was given at £89k, meaning the value of the house at the time was deemed to be £178k.

The surviving wife now has 100% ownership of the house, which has increased in value to £230k.

She also has other chargeable assets of £690k. Her estate on death would therefore be £920k, all of it being left to her children.

I am confused on how to calculate the reliefs available.

On one reading I say:

Wife NRB = £325k
Husband NRB = £325k
Wife RNRB = £175k (applied against £230k house)
Total reliefs: £825k

The above would be based on the view that the value of the house on the first death fell outside of the estate (as a gift on death from one spouse to the other) and the full NRB of the husband can be transferred, despite a probate value of £89k.

Does this look correct?

For a long time I have been working on different assumptions, that I have to adjust the Husband’s NRB to reflect that £89k was “used” on death to leave his 50% share of the house to his wife and that that half of the house would fall outside of the estate? This was leading me to believe that the reliefs available were only as follows:

Wife NRB = £325k
Husband NRB = £325k - £89k = £236k
Wife RNRB = £175k capped at 50% of house value = 50% x £230k = £115k
Total reliefs: £676k

I am increasingly thinking that it's the first view that is correct and the reliefs are basically 2xNRB and 1xRNRB. Any views to confirm or counter this would be much appreciated.

Thanks

[genou]

Hi all,


I am increasingly thinking that it's the first view that is correct and the reliefs are basically 2xNRB and 1xRNRB. Any views to confirm or counter this would be much appreciated.

Thanks

Both calcs are wrong.

Wife NRB = £325k
Husband NRB = £325k
Wife RNRB = £175k
Husband RNRB = £ 55k
Total reliefs: £880k

Leaving (920-880) = 40k chargeable. The amount of transferable RNRB from the husband can rise up to 175k, but the total RNRB obviously cannot exceed the value of the house. She could start to give capital away now, or move and buy a more expensive house thereby turning taxable assets of 120k into RNRB sheltered house. Or spend 40k on an extension to the existing house.

On transfer of the RNRB - https://www.gov.uk/guidance/inheritance ... -threshold . It doesn't matter that her husband died before RNRB was introduced.

[SebsCat]

I found the book "How to Save Inheritance Tax" by Carl Bayley to be extremely helpful in getting my head around all of the rules. Even if your sister still needs professional advice, it's well worth spending 30 quid to know what she should be asking the advisor!

[DrFfybes]

Both calcs are wrong.

Wife NRB = £325k
Husband NRB = £325k
Wife RNRB = £175k
Husband RNRB = £ 55k
Total reliefs: £880k
[...]

On transfer of the RNRB - https://www.gov.uk/guidance/inheritance ... -threshold . It doesn't matter that her husband died before RNRB was introduced.

Is this correct? - The husband left his half of the house to his wife, so surely that is exempt from IHT and therefore she can use his full RNRB up to the value of the house. [edit] Ah - OK, I see what you did, but equally if the house is worth up to £120k more than estimated, that would not affect the estate.

So effectively the house can be disregarded, but the other assets need to be reduced below the £650k combined NRBs, otherwise [edit] £16k bil as it stands.

She can give away £3k this tax year, and from the last one if the allowance isn't used, so £6k can go. Also gifts of up to £250 to other people, so if she has children (and their spouses) and grandchildren then there is scope for a bit more.


Paul

[wanderer]

Thank you very much for these replies; much appreciated, and once again TLF proving to be a great education to me.

Genou, thank you particularly for that link. I'm amazed I hadn't picked up that an RNRB could be used on behalf of someone who died 8 years before it was invented. But it is so counterintuitive maybe I was just reading what I presumed to be true rather than was actually true.