Residence nil rate band ― main provisionsWhat is the residence nil rate band (RNRB)?The RNRB is an addition to the basic nil rate band (NRB), which further reduces the inheritance tax payable on death. It differs from the basic NRB in that it is applied only to the death estate and not to lifetime gifts within seven years of death. Like the NRB, it is also available to an individual regardless of domicile. The enhanced allowance is dependent on:•the value of residential property in the estate, and•the inheritance of lineal descendantsThe RNRB was introduced in Finance Act 2015, with further refinements added by Finance Act 2016. It took effect from 6 April 2017. The detailed legislation is to be found in amendments to IHTA 1984. Much of the commentary on the provisions has focused on the complexity of the legislation which, to a large extent, is the result of the specific political target of the additional relief. The stated aim of the allowance was to make it easier to pass on the family home to children and grandchildren without the burden of inheritance tax. It follows a conservative election promise in April 2015 to “take the family home out of inheritance tax so you can pass something on to your children”. The RNRB is progressively withdrawn for individual estates valued at more than £2 million so the relief is aimed squarely at the moderately wealthy, who hold a large proportion of their wealth in their home, and
Residence nil rate band ― trusts, downsizing and lifetime giftsFurther aspects of the residence nil rate band (RNRB)The RNRB is an addition to the basic nil rate band (NRB), which further reduces the inheritance tax payable on death. The principal provisions are described in the Residence nil rate band ― main provisions guidance note. This guidance note looks at some of the more advanced aspects.Settled propertyThere are limited circumstances in which property passing out of or into a trust qualifies for the RNRB.Where a person (D) has a qualifying interest in possession (QIIP) in settled property, it forms part of his estate on death. If the QIIP includes a residence, it will be eligible for the RNRB if it passes absolutely to a lineal descendant of D. The RNRB will not apply if it passes to a succeeding interest in possession. This is because the subsequent interest in possession will not be a QIIP so the beneficiary will not be ‘beneficially entitled’. However, it is thought that the RNRB would be available if the succeeding interest in possession is a disabled person’s interest (DPI) because that is a QIIP.See Example 1.In situations where property is passing from an absolute owner into trust, ie the property is settled by Will, the RNRB will be available if it is to be held in trust for a lineal descendant as beneficiary of:•an immediate post-death interest (IPDI)•DPI•a bereaved minor’s trust (BMT), or•an age 18–25 trustIHTA 1984, s 8J(3)–(4)It will
IHT400 - inheritance tax accountPreparatory workBefore completing the Inheritance Tax account for submission to HMRC, the practitioner needs to undertake a comprehensive review of the extent of the estate and its proposed distribution. The work required leading up to the submission of the account is described in detail in the Obtaining the grant of representation guidance note and other notes in that sub-topic. The key elements of the initial investigatory work are:•understand the terms of the Will, or the intestacy provisions that apply and identify the beneficiaries (ie their relationship to the deceased) •identify the assets and liabilities that make up the chargeable estate on death. See the IHT charge on death guidance note •identify gifts made in the seven years before death, and gifts with reservation made at any time•obtain valuations of all the assets, liabilities and gifts mentioned above As the information and valuations are collected, it is advisable to record them on one working schedule such as an Excel spreadsheet. The Proforma – estate at death working schedule provides a suitable template.In due course, the schedule can form the basis of the Estate Account at date of death as presented in the final Estate Accounts. As work progresses, values can be entered and amended; queries noted and resolved. The schedule can be constructed with a proforma inheritance tax calculation so that total values and the expected tax liability can be monitored. When you are satisfied that the valuation of the estate
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