SolvedIHTM46070 | Applying the RNRB to the estate: examples
From HM Revenue & Customs · Inheritance Tax Manual
Examples:
1) Anthony dies in 2020-21 and leaves a home worth £300,000 and other assets worth £190,000 to his children. The maximum available RNRB in 2020-21 is £175,000.
| Example 1 | |
|---|---|
| RNRB for the estate = | £175,000 (lower of £300,000 and £175,000) |
| NRB = | £325,000 |
| Estate value = | £490,000 |
| Less RNRB = | £175,000 |
| Remaining value = | £315,000 |
| Less NRB = | £315,000 |
| Value on which IHT due = | £0 |
In this case the whole of the RNRB has been used up, but £10,000 out of the available NRB of £325,000 remains unused and can be transferred to Anthony’s wife.
The value of the residence being inherited by direct descendants does not have to be more than the existing NRB (or transferable NRB). The RNRB is applied against the whole chargeable estate, not just against the value of the residence, so the benefit of the RNRB is shared across the whole chargeable estate on death. The NRB (and any transferable NRB) is applied to any part of the estate on death that remains chargeable after the RNRB has been applied.
If the value of the residence is less than the maximum available RNRB, the unused amount cannot be set against the other assets in the estate. However, the unused proportion would be available to transfer to the deceased’s spouse or civil partner’s estate when they die and leave a residence to their direct descendants.
2) Beatrix dies in 2020-21 leaving a flat worth £100,000 and other assets of £400,000 to her son with her remaining assets of £500,000 passing to her husband. The maximum available RNRB in 2020-21 is £175,000.
| Example 2 | |
|---|---|
| RNRB for the Estate = | £100,000 (lower of £100,000 and £175,000) |
| NRB = | £325,000 |
| Chargeable estate value = | £500,000 |
| Less RNRB = | £100,000 |
| Remaining value = | £400,000 |
| Less NRB = | £325,000 |
| Value on which IHT due = | £75,000 |
The maximum possible RNRB for this estate was £175,000, but the value of the flat left to the son was only £100,000, so only £100,000 of RNRB has been used. The RNRB which has not been used, £75,000, is available for transfer to the husband’s estate. There is no unused NRB to transfer as this has been used in full.
3) Winston dies in 2020-21 leaving a free estate valued at £500,000 (including an apartment valued at £150,000). He had a life interest in two will trusts, valued at £250,000 and £150,000. His free estate passed to his daughter. The maximum RNRB available in 2020-21 is £175,000.
| Example 3 | |
|---|---|
| RNRB for the estate = | £150,000 (the lower of £150,000 and £175,000) |
| NRB = | £325,000 |
| Chargeable estate value = | £900,000 |
| Less RNRB = | £150,000 |
| Remaining value = | £750,000 |
| Less NRB | £325,000 |
| Value on which IHT due | £425,000 |
As can be seen the RNRB and NRB has been utilized against the aggregate value of the deceased’s ‘estate’ (IHTM46012). The IHT is then apportioned as appropriate against the value of the free estate and the two trusts.
4) Christine dies in 2020-21 leaving a house worth £200,000, and other assets worth £250,000, to her daughter. She had previously made gifts of £400,000 to her nephew within seven years of her death. The maximum available RNRB in 2020-21 is £175,000.
| Example 4 | |
|---|---|
| RNRB for the estate = | £175,000 (lower of £200,000 and £175,000) |
| NRB = | £325,000 |
| The NRB of £325,000 is applied against the lifetime gifts of £400,000 first | |
| Chargeable lifetime gifts = | £400,000 |
| Less NRB = | £325,000 |
| Value of gifts on which IHT is due = | £75,000 |
| There is no NRB to use on the estate on death. | |
| Estate value = | £450,000 |
| Less RNRB = | £175,000 |
| Remaining value = | £275,000 |
| Less remaining NRB = | £0 |
| Value of estate on which IHT is due = | £275,000 |
Because the NRB is applied against any chargeable lifetime transfers and any gifts made within seven years of the donor’s death, whilst the RNRB is not, it is possible for the NRB to be completely used up by those gifts, but any RNRB would still be available to reduce the IHT charge on the estate at death.