If the value of the home in the person’s estate was less than the maximum RNRB when they sold or gave it away, the lost RNRB is worked out as a percentage of that maximum RNRB. You then apply that percentage to the maximum RNRB when the person dies. Example This result was considered unsatisfactory on policy grounds if the transferor continued to receive a benefit from the gifted property ( IHTM04030) - for example where the transferor gives their residence to their children but continues to live in it for at least seven years until their death. In the absence of special provisions to the contrary, in that example the house would not be taxable on the transferor’s death They should submit form IHT500, ‘Election for Inheritance Tax to apply to asset previously owned’, by 31 January after the tax year in which they became liable to the pre-owned assets charge. An election cannot be made after the person’s death. Taper relief does not apply to gifts made less than 3 years before death. Inheritance Tax is charged at the full rate of 40%. Take away the percentage at step 3 (0%) from the percentage at step 2 (100%). The percentage at step 2 stays at 100%.

Everyone that is subject to UK inheritance tax is entitled to a nil rate band on their death. In addition, for deaths after 5 April 2017 they may be entitled to a residence nil rate band of up to; If William survives Sue, he will inherit Jim and Sue's nil rate band. But again he will be limited to a 100% uplift. The * net estate is the value after deducting any debts, including an outstanding mortgages or those incurred by equity release, but excluding IHT exemptions such as spousal exemption or BPR, now known as Business Relief, on qualifying assets. The amount of the downsizing addition will usually be the same as the RNRB lost when the former home is no longer in the estate. As an example, someone could transfer ownership of their house to a relative and continue to live in it without paying rent at the going rate.Deduct the percentage at step 3 (0%) from the percentage at step 2 (95%). So the percentage at step 2 stays as 95%. During the passage of the 1986 Finance Bill the minister of state, Peter Brookes, stated the exemption from the inheritance tax reservation of benefit rules could apply in:

A spouse might leave such an interest – nowadays an immediate post-death interest – for the surviving spouse’s benefit and equip the trustees with an overriding power of appointment. That power could be exercised, for example, to appoint a valuable painting to the children while leaving it hanging on the survivor’s wall. So far, so good. However, the guidance then provides an example of an Australian domiciled donor who puts foreign property into a discretionary trust under which he is a potential beneficiary. He has become domiciled in the UK by the time of his death. The guidance states: 'The property is subject to a reservation and is therefore deemed to be part of the donor's death estate.' Children, grandchildren and their spouses are the most common examples of 'direct descendants'. However, foster, adopted, wards and step-children may also be included. The GWR double charges relief applies only to charges on the settlor as an individual and do not affect tax on TYA or proportionate charges. ( IHTM14711) In the past the Inland Revenue has issued guidelines and the Country Land Owners Association has sought clarification on the matter. The advice that the association has been given still holds good. That should help to answer any questions on undivided shares.’Qualifying business and agricultural assets that have been owned for at least two years may be entitled to IHT relief of up to 100% Do you have a reservation? This is not a greeting by the maître d’ at my local fast-food establishment but rather a consideration of the inheritance tax ‘gifts with reservation of benefit’ provisions.

It is considered that there is a reasonable technical argument that the donee could receive a share greater than that retained by the donor(s) on the basis that there is no longer reference to full consideration as the basis for provision, but it is understood that HMRC regards such planning as provocative.There is a reduced spousal exemption when a UK domiciled (or deemed domiciled) individual makes a gift to their non-UK domiciled spouse or civil partner. The exemption is limited to the amount of the nil rate band and is a cumulative total that applies to both lifetime transfers and those made on death. The donor's occupation of gifted land is not a GWR, broadly, if it represents reasonable provision for his care and maintenance due to old age, infirmity etc, and results from unforeseen changes in circumstances (eg. a sudden serious illness), and the donee is a relative of the donor or of his spouse or civil partner (s 102C(3), Sch 20 para 6(1)(b)). The 'reasonable' test is subjective, and whether it is met depends on the circumstances. (f) 'De minimis' benefits In The Executors of Lady Jane Ingram deceased v CIR [1999] STC 37 the House of Lords held that the retained lease did not amount to a reservation of benefit for inheritance tax purposes . Finance Act 1999, s 104 reversed the effect of the decision by inserting new s 102A, s 102B and s 102C in FA 1986. For a definition of a Gift with Reservation (GWR) on discretionary trusts and details of tracing settled assets, see the lifetime transfers chapter of this manual, from IHTM14393 passes the family home to 'direct descendants' - broadly their children/grandchildren and/or their spouses on death, or