IHT question, specifically relating to Residence Nil Rate Band

[Bobwood]

Looking for some help with estate planning.

Mrs Smith dies aged 85. Her Nil Rate Band allowance of £325,000 transfers to her husband Mr Smith along with her Residence Nil Rate Band of £175,000. This provides Mr Smith with an effective IHT threshold of £1,000,000.

Three years later Mr Smith becomes incapable of independent living and moves into a care home. He sells the family home he and his wife lived in for 50 years.

One year later Mr Smith dies and leaves everything to his only direct descendent.

What is the IHT threshold on his estate?

Specifically, is the combined £350,000 Residence Nil Rate Band allowance that Mr Smith's estate would have benefitted from had he still lived at home lost the moment he sells his home?

[DrFfybes]

The IHT allownce would be £650k, plus the value of the sold property up to £350k.

If the property sold for less than £350k then the value of the property is the most that can be claied using the RNRB.

https://www.gov.uk/guidance/how-downsiz ... -threshold

Paul

[Bobwood]

Thank you.

I had read that webpage earlier today but didn't find it particularly easy to follow.

If, as I think you're saying, the house sells for £180,000, the IHT allowance with be £650k plus £180k, so £830k.

[AuroraAbyss]

In this case, Mr. Smith's estate would still benefit from the Residence Nil Rate Band (RNRB) despite him selling the family home. The RNRB is not lost just because the individual moves into a care home or sells their home. As long as certain conditions are met, such as leaving the home to direct descendants, the RNRB can still be applied. So, in Mr. Smith's case, the total IHT threshold on his estate would be £1,000,000, which includes both the Nil Rate Band and the Residence Nil Rate Band allowances.

[DrFfybes]

Thank you.

I had read that webpage earlier today but didn't find it particularly easy to follow.

If, as I think you're saying, the house sells for £180,000, the IHT allowance with be £650k plus £180k, so £830k.

Correct. The IHT exemption is UP TO £1m (and not a guaranteed £1m as suggested by the above post from a newly registered user). However they did manage to correctly glean that the property must got to direct descendants.

Paul

edited for typos

[Bobwood]

I'm confused now. The property is not being passed down to direct descendents (I've been the executor twice for such a circumstance).

The property is being sold for £180k whilst Mr Smith is very much alive, and he may yet live happily in the car home for years.

My question relates to what happens to the Residence Nil Rate Band in this circumstance.

Perhaps AuroraAbyss means as long as Mr Smith's will shows the property would have been inherited by a direct descendent had it not been sold?