Guidance at last on RNRB
In a week of shock results in the US election a quiet release was made of the HMRC Guidance on the new Residence Nil Rate Band (RNRB). This is essential reading even if the examples are rather simplistic. There are two elements – Guidance https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band and case studies which are referred to in the Guidance https://www.gov.uk/government/case-studies/inheritance-tax-residence-nil-rate-band-case-studies
The Guidance is clearly written for the personal applicant who may be applying for a Grant without professional assistance. It is likely in such a case that if the deceased’s estate is eligible for any RNRB (actual or brought forward, never mind downsizing) it will be enough to trigger a referral to a professional. We can all agree surely that this RNRB is absurdly complex. Still it might have the silver lining of stemming the flow of personal applications for probate and turning more people to seek professional help.
The Guidance includes an explanation of the basic rules including how to calculate and apply the RNRB. It explains the restricted application to direct descendants of a gift of a home and how that applies to partial interests and inheritances. There is also an explanation of the effect of the taper threshold.
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The two areas of particular difficulty are its application to trusts and the downsizing provisions. It is highly likely that should either of these areas be relevant in a particular case it is inevitable a professional will have to be involved.
The Guidance does not proffer any commentary on the drafting of Wills with a view to securing the maximum amount of RNRB and brought forward RNRB. This will have to be found in practitioner texts and journals, as the Guidance states HMRC cannot provide tax planning advice.
However, every practitioner preparing Wills and administering estates need to familiarise themselves with the detail of the rules applying RNRB and reading the Guidance may be a helpful way in.
The case studies
Throughout the Guidance reference is made to case studies illustrating the points described. RNRB needs worked examples to explain it as the rules are difficult, even for practitioners, given they are not the same as the rules for the Nil Rate Band or the Transferable Nil Rate Band. The examples provided are simple and mostly do not deal with the common situation of spouses and civil partners who may pass the estate between them on the first death and seek tax reliefs on the second estate when IHT will bite.
In particular, most of the downsizing examples state there is no brought forward allowance. There is one which does refer to the downsizing by a widow whose estate is eligible for a transferred RNRB but it uses the full amount of the transferred allowance on death in the first stage of the calculation when s.8G (4) suggests that when the prior death is before 8 July 2015 the default allowance would be £100,000.
Still, these documents are essential reading and provide help to clarify some of the points; although more complex examples would have assisted professionals.
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