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FLK 2 WILLS > Nil rate bands > Flashcards

Nil rate bands Flashcards

1
Q

Do all individuals have a NRB for IHT purposes?

A

Yes

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2
Q

What is the basic NRB?

A

£325,000
(the first £325,000 of a transfer subject to IHT is taxed at 0%)

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3
Q

Can an individuals surviving spouse/civil partner inherit the unused portion of their basic NRB?

A

Yes - aka TNRB

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4
Q

What is the current additional NRB for individuals who leave their family home to direct descendants?

A

£175,000 - aka RNRB

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5
Q

Can RNRB be transferred to an individuals surviving spouse/civil partner?

A

Yes

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6
Q

Before 9 October 2007 - would the basic NRB be wasted when a deceased passed their estate entirely to their surviving spouse?

A

Yes - because spouse exemption applied there was no use for the NRB

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7
Q

Individuals would often try to make the most of both NRBs by leaving a portion of their estate to other family members or setting up trusts - what were they known as?

A

Nil rate band trusts

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8
Q

What are nil rate band trusts?

A

discretionary trusts which cover the amount of the NRB & include the surviving spouse as a potential beneficiary - this allows the survivor to benefit without the trust property forming part of their estate for IHT purposes

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9
Q

Where one spouse held the bulk of the couples assets - what would they often be advised to do?

A

To try and equalise their estates, to ensure both had enough assets to make the most of their own NRB
(become less common since the intro of the TNRB in the Finance Act 2008)

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10
Q

What does the TNRB allow?

A

Allows a surviving spouse to take advantage of the unused portion of the deceaseds basic NRB

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11
Q

How does the TNRB work?

A

If a married individual dies and some or all of their NRB remains unused, the PRs of the surviving spouse can claim an increase in the survivor’s NRB equal to the unused percentage of the first spouse’s NRB - the TNRB

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12
Q

Is the TNRB the unused amount carried forward?

A

No it’s equal to a % of the NRB sum on the date the survivor dies
- this operates in favour of the taxpayer because the estate of the surviving spouse will benefit from any increase in the NRB threshold which occurs after the first death

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13
Q

Example…

A
  • If the NRB was £312,000 when the first spouse died but had increased to £325,000 by the time the second spouse died, the amount of the TNRB would be calculated with reference to £325,000 not the lower figure of £312,000.
  • Therefore, if the first spouse to die had used 50% of their NRB, when the second spouse died the transferable amount is £162,500.
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14
Q

If the NRB amount hasn’t changed between the date of the first & second death - will the unused amount and unused % be the same?

A

Yes

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15
Q

The TNRB is only available when…

A

the surviving spouse dies

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16
Q

Can a TNRB be claimed in respect of a chargeable lifetime transfer when it’s made by the survivor?

A

No

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17
Q

Does the date of the first spouses death matter?

A

No - ie it can predate the intro of the TNRB…the TNRB can apply provided the survivor’s death occurred after the intro of the TNRB

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18
Q

Can individuals who have survived more than one spouse claim the TNRB in respect of all of them?

A

Yes - subject to a cap of 100% of a full nil rate band being transferred

19
Q

Can individuals who would be entitled to claim a TNRB with regards a previous marriage/civil partnership pass this on to any subsequent spouse they have?

A

Yes - capped at 100% of a full NRB

20
Q

Example - outliving multiple spouses

A
  • A and B were married. B later died. Following B’s death, 20% of his NRB was used (leaving 80% unused).
  • A then married C. C later died. Following C’s death, 50% of his NRB was used (leaving 50% unused).
  • A has just died.
    A’s PRs can claim a TNRB from both B and C (80% from B and 50% from C).
  • However, the total is capped at 100% (one full NRB of £325,000)
  • A’s PRs can claim A’s own NRB plus 100% TNRB (from B/C), thus increasing A’s NRB from £325,000
    to £650,000.
21
Q

Example - outliving multiple spouses

A
  • D and E were married. E later died. Following E’s death, 90% of her NRB was used (leaving 10%
    unused).
  • D then married F. F died later. Following F’s death, 70% of her NRB was used (leaving 30% unused).
  • D has just died.

D’s PRs can claim a TNRB from both E and F (10% from E and 30% from F).

D’s PRs can claim D’s own NRB plus 40% TNRB (from E and F), thus increasing A’s NRB from £325,000 to £455,000

(£325,000 + £130,000 (40% of £325k))

22
Q

Example - passing TNRB to new spouse

A

a) A died 15 years ago, survived by wife, B. A left all assets to B, meaning A’s NRB was unused.

b) B married C five years ago.

c) B died two years ago, leaving her entire estate to the children from her first marriage. 50% of her NRB remained unused. B’s PRs didn’t need to claim TNRB from A because B didn’t use her whole NRB.

d) C died recently, leaving his estate (worth £700,000) to his siblings. He has a full NRB available.

  • C’s NRB doesn’t cover the full value of his estate. His PRs will therefore want to claim the TNRB from B’s estate.
  • B’s total available NRB included B’s own NRB (of which 50% remained unused) and A’s full NRB, to which B’s estate was entitled but did not claim (worth £325,000).
  • The claim by C’s PRs for a TNRB will be capped at one full NRB. C’s PRs can increase C’s NRB to £650,000, but no more, even though B’s total ‘available but unused’ NRB would be worth more than £325,000.
23
Q

Does a claim need to be made when the first spouse dies?

A

No

24
Q

Within how long must the PRs of the surviving spouse make a claim for the TNRB in the IHT return?

A

Within two years of the end of the month of death (or within three months if the PRs first acting, if this is later)
- if they fail to do so, anyone else who’s liable to pay the IHT on the surviving spouses death can make the claim after the deadline for the PRs to make the claim

25
Q

Does HMRC have discretion to extend the deadline?

A

Yes

26
Q

If an individual survives more than one spouse, must a separate claim be made for each?

A

Yes - it’s advisable to do this even though the cap means that only one TNRB might actually be needed (in case there’s an error discovered in the IHT returns of any of the deceased spouses)

27
Q

Can the PRs of a surviving spouse make a claim for any TNRB the deceased spouse was entitled to on the death of a previous spouse (if their own PRs hadn’t made such a claim already)?

A

Yes

28
Q

Which act introduced the Residence nil rate band (RNRB)?

A

Finance Act 2015

29
Q

What is the purpose of the RNRB?

A

It provides an additional NRB where the following conditions are satisfied:
a) the deceased died on or after 6 April 2017
b) their death estate included a ‘qualifying residential interest’
c) the QRI was closely inherited by a direct descendant

30
Q

If part of the QRI is closely inherited, but the other part isn’t, will the whole value of the share be taken into account when calculating the value of the RNRB?

A

No - only the chargeable value of the share which is closely inherited

31
Q

What is the amount of a full RNRB?

A

£175,000

32
Q

If the deceased’s share/interest in the property (after the deduction of any mortgage on the property) is worth less than £175,000 - at which value is the RNRB capped at?

A

The value of the deceased’s interest in the property

33
Q

Where the RNRB is claimed, is it applied to the death estate as a whole or as a set off against the gift of the property separately?

A

As a whole

34
Q

Is there a tapered withdrawal of the RNRB for estates with a net value of more than £2 million?

A

Yes - here this means the value of the assets which comprise the taxable estate, after debts have been deducted, but before exemptions and relief are applied

35
Q

What is the reduction in the RNRB for every £2 above the £2 million threshold?

A

£1

36
Q

Is there RNRB available for net estates worth £2,350,000 or more (£2,700,00 where a full transferred RNRB applies)?

A

No

37
Q

What is a qualifying residential interest (QRI)?

A

A residential property interest which is part of the deceased’s estate immediately before death

38
Q

Where the deceased had more than one residential property interest in their estate at death, who must nominate one of them as their QRI?

A

The PRs

39
Q

What is a residential property interest (RPI)?

A

An interest in a dwelling-house which the deceased occupied as their residence at some point during their period of ownership

40
Q

Does residential property interest include property in which the deceased didn’t live (because they were living in other job-related accommodation) but intended to do so in due course?

A

Yes

41
Q

Does RPI include rental investment properties in which the deceased never lived?

A

No

42
Q

Can a dwelling house include the garden/grounds (if the land isn’t subject to a woodlands relief election)?

A

Yes

43
Q

What is meant by a QRI must be closely inherited?

A

a beneficiary closely inherits from the deceased if they receive the QRI by:
- gift under the will…either as a specific legacy of the deceased’s home, or by taking a whole or part share of the residue which includes such property
- operation of the law of intestacy
- operation of the rules of survivorship

44
Q
A

FLK 2 WILLS (8 decks)

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