IHTM43046 - Interaction with conditional exemption and woodlands relief: recapture charge arising after the death of the survivor

Where the disposal occurs after the second death, the unused nil rate band may be transferred to the survivor바카라 사이트™s estate in the normal way (IHTM43020). In order to avoid recalculating the survivor바카라 사이트™s estate when the recapture charge arises IHTA84/S8C(5) reduces the nil rate band available against the recapture charge on the deceased바카라 사이트™s death by taking into account the amount of the nil rate band that was transferred to the estate of the survivor.  

Example

Rebecca survived her husband, Paul, who died on 1 November 2002 leaving an estate of £550,000 as follows

£60,000 legacies to his children,

£125,000 painting qualifying for conditional exemption

The residue to Rebecca

Unused nil rate band calculation

M = £250,000

VT = £60,000

M* *is greater than VT by £190,000

Transferable nil rate band calculation

E =£190,000

NRBMD = £250,000 so

(190,000 ÷ 250,000) × 100 = 76.0000%

Rebecca died on 1 February 2008, before the conditionally exempt property was sold and left an estate of £450,000. The nil rate band available on her death was £300,000 + (300,000 x 76%) = £528,000, so no tax was paid. Only £150,000 of the uprated nil rate band was needed to keep the Rebecca바카라 사이트™s estate free of tax, so there remains an element of the nil rate band (£78,000) available on Paul바카라 사이트™s death to count against the liability that will arise when the conditionally exempt property is sold.  

After Rebecca바카라 사이트™s death, the conditionally exempt property is sold for £300,000 in June 2009, when the nil rate band was £325,000. Normally, the sale proceeds are added to the chargeable estate on the first death and tax charged accordingly. Here that would give a liability of £360,000 - £325,000 @ 40% = £14,000. But £150,000 of the nil rate band was transferred to Rebecca바카라 사이트™s estate in order to keep her estate free of tax, so the nil rate band available on sale is adjusted as follows under IHTA84/S8C(5).

The 바카라 사이트˜personal NRBM바카라 사이트™ being the nil rate band applying at the date of sale (£325,000), is 바카라 사이트˜appropriately reduced바카라 사이트™ by the amount of the nil rate band that was required to keep Rebecca바카라 사이트™s estate free of tax (£150,000). This reduces the nil rate band to be applied against the deferred charge to £175,000.

The tax is then calculated as follows

(60,000 +300,000) 바카라 사이트“ 175,000 = 185,000

185,000 @40% = £74,000

Note that to work out the appropriate reduction you will need to know the chargeable value of the estate of the surviving spouse or civil partner.