However, this is not the case if the deceased’s own estate is large, in which case the amount that is inherited by the surviving spouse is reduced by £1 for every £2 the estate exceeds £2m.
For example, Mr Lannister dies, leaving his entire estate of £3m to Mrs Lannister. Mrs Lannister, after a run of bad luck at Monte Carlo and Ascot, dies leaving an estate of £1m.
Although her personal representatives can use the inherited nil rate band from her husband, there is no inherited RNRB available.
RNRB ‘deathbed’ planning – how do we reduce the value of an estate?
An individual with an estate of more than £2m can make potentially exempt transfers (PETs) to bring the estate below £2m.
If death occurs within seven years and the PETs fail to be exempt, they will be included in the value of the estate for inheritance tax.
However, the assets included in the £2m threshold for RNRB taper do not include PETs, so the RNRB will be available because PETs do not count towards the £2m threshold for taper.
For example, Mrs Stark has an estate of £2.6m, which includes business assets of £800,000 that will attract business property relief (BPR). She has inherited her late husband’s RNRB.
As things stand, her estate will have no RNRB – potentially 2 x £150,000 – because it will all be tapered away (note that the business assets are included in the threshold calculation, even though they will receive relief).
Should she gift £600,000 and die a few months later, the PETs will be subject to inheritance tax, but because they do not count for the RNRB threshold the RNRBs will be available, saving £120,000 inheritance tax.
How do charitable bequests work?
The RNRB threshold does not take account of reliefs or exemptions, including the charity exemption. So an estate of £2.3m with a charitable bequest of £300,000 will have an RNRB tapered away.
Making a lifetime gift to charity to restore the RNRB needs some careful consideration because the intricacies of our tax system mean that the reduced rate of inheritance tax on estates where at least 10 per cent is left to charity must also be borne in mind.
Dependent on the size of the estate, the nil rate bands available, and the amount going to charity, it might be preferable not to make a lifetime gift if it would result in the loss of the reduced IHT rate.
BPR – how difficult can it be?
The rules about BPR seem straightforward. It is available at 100 per cent on:
- A business or an interest in partnership.
- Unquoted shares in a trading business.
