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9 min read 1 Mar 22
When the £2m Taper Threshold (TT) is exceeded, the RNRB is reduced by £1 for every £2 over that limit. Tapering can reduce the RNRB to zero.
In Spring Budget 2021 it was announced that the IHT thresholds at 2020/21 levels will be maintained up to and including 2025/26. This maintains the NRB at £325,000, the RNRB at £175,000 and the RNRB taper starting at £2m
The TT can restrict not only the amount of RNRB available on the death, but also the amount of unused RNRB that is available to transfer to a surviving spouse or civil partner.
Based on a RNRB figure of £175,000, there will then be no RNRB if the estate exceeds £2.35m or £2.7m including the brought forward allowance if appropriate
The RNRB facts article explains how the value of the estate is calculated. For planning purposes, it is important to note that the value excludes the value of any CLTs (chargeable lifetime transfers) or failed PETs (potentially exempt transfers)because property which has been gifted is not part of the estate immediately before death.
Example of lump sum gift where individual does not survive for 7 years
Example of lump sum gift where individual survives for at least 7 years
Example of married couple where first death estate exceeds £2m
Beware also the problem where the estate of the first to die is below £2m but all assets are left to the surviving spouse/civil partner causing a bunching effect on second death with the combined estate then breaching the £2m limit. Planning while both partners are alive, or even after first death may alleviate this problem. This might involve:
Care should be taken though with the RNRB gift on first death in case it impacts on the surviving spouse wishing to remain resident in the family home.
A beneficiary of a will can execute a Deed of Variation within 2 years of the date of death. Technically the will is not being varied as such, but instead the beneficiary can redirect some or all of the inheritance and for IHT purposes it is treated as if it had been carried out by the deceased. Therefore, the gift by the beneficiary is not subject to the 7 year rule. With that in mind, consider the following.
Alice and Ben are an unmarried couple. When Alice dies, she leaves her home to Ben and because he is not a direct descendant then no RNRB will be available. If however Ben executes a Deed of variation, then he can ‘vary away’ the home to Alice’s granddaughter, for example, who is a direct descendant. The RNRB will then be available.
Where the deceased wishes to give beneficiaries maximum flexibility in the way in which the estate is distributed, it is not uncommon to see the whole estate, or at least an amount equivalent to the NRB, left to a discretionary trust. If the home, or a share of it is left to a discretionary will trust then there will be no RNRB available as there is no one ‘closely inheriting’.
If however within 2 years of death there is an appointment of the trust assets by the trustees to a direct descendant, then it would be treated for IHT purposes as if the assets had been left to the direct descendant outright (S144 IHTA 1984). In that event, the RNRB would be available as the direct descendant is treated as if he/she had inherited the property on death.
When the home becomes trust property after the deceased’s death, then be careful when gifts to children and grandchildren are age contingent.
A trust for a ‘bereaved minor’ refers to a trust for the benefit of a person under 18, at least one of whose parents has died where the trust is created in certain circumstances, typically under the will of a deceased parent of the bereaved minor, or under a statutory trust arising on intestacy. Where the trust arises under intestacy rules then the trust will automatically qualify. Where it arises under the will of a deceased parent of the bereaved minor then the trust needs to satisfy certain conditions.
An 18-25 trust is a trust for the benefit of a person under the age of 25, at least one of whose parents has died. The trust is typically established under the will of a deceased parent of the minor, and again, certain conditions must be met.
Given that age contingent gifts to grandchildren in the will can be problematic from a RNRB perspective, then is there anything else advisers should be aware of? Yes. If a grandparent leaves the home (or a share of it) in their will to a grandchild who has reached 18 at time of death, then he/she will have a right to income under S31 of the Trustee Act 1925 (assuming that hasn’t been excluded). That would mean the grandchild has an Immediate Post Death Interest (IPDI) meaning that the share has been ‘closely inherited’.
Example of how three RNRBs can be achieved (I)
Now let’s change the circumstances and assume that Ivan dies before Harriet.
Example of how three NRBs can be achieved (II)
As explained in our RNRB facts article, the value of the RNRB for an estate will be the lower of the net value of the interest in the home (after deducting any liabilities such a mortgage) or the maximum amount of the band.
Example of increasing the equity on the home
Alternatively, perhaps Stephen could restructure the debt so that it is secured against an asset other than his home?
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