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HMRC internal manual

Inheritance Tax Manual

Transfer of unused RNRB: The brought-forward allowance: Method of calculation

The way in which the brought-forward allowance is calculated is set out in IHTA84/S8G(3). The ‘person’ referred to below is the individual whose brought-forward allowance is being calculated.

  • The first step is to identify each amount available to be carried forward from the death of a spouse or civil partner of the person. This is the unused RNRB in their estate.
  • This amount is expressed as a percentage of the residential enhancement at the death of the deceased spouse or civil partner.
  • The percentages are added together to reach a total if there is more than one pre-deceased spouse or civil partner.
  • If the total percentage is greater than 100%, this percentage is limited to 100%. The brought-forward allowance is this percentage of the residential enhancement at the date of the survivor’s death.

Example 1:

Thomas died in 2015 and left his entire estate, valued at £950,000, to his wife Edwina. Edwina dies on 30 July 2019 and leaves all her estate including a residence worth £400,000 to her daughter.

On the death of Thomas the RNRB could not have been used so 100% is available to transfer to his wife’s estate. On Edwina’s death in 2019-20, the maximum available RNRB is £150,000. Her executor makes a claim to transfer the unused RNRB from her late husband. The total available RNRB for Edwina’s estate will therefore be her own RNRB of £150,000, plus a further 100% of the RNRB at her date of death. £300,000 (£150,000 + (100% x £150,000)). A total RNRB of £300,000.

Example 2:

Paul’s wife, Linda, died in June 2017. Linda had an estate worth £2,100,000 including a share of a flat valued at £30,000 which was a QRI, left to her daughter. Her sister was left £100,000, and the remainder of her estate passed to Paul. The RNRB in 2017-18 is £100,000. However, as Linda’s estate is valued at more than £2,000,000 the RNRB is tapered (IHTM46023) by £1 for every £2 by which the taper threshold is exceeded. Linda’s adjusted allowance (IHTM46025) therefore becomes £50,000:

£100,000 less (2,100,000 − 2,000,000) ÷ 2 = £50,000

On Paul’s death in June 2018 a claim is made by his personal representatives to use Linda’s unused RNRB. Since she left a QRI valued at £30,000 to her daughter, the value of Linda’s unused RNRB will be reduced by this amount:

Chargeable value of Linda’s estate £130,000
   
Less RNRB £30,000 (lower of £30,000 and £50,000)
  £100,000
Less NRB £100,000
Value chargeable to IHT Nil

So in this example there is £20,000 unused RNRB, which as a percentage of the residential enhancement at that date is £20,000 ÷ £100,000 = 20%. On Paul’s death the residential enhancement at that time of £125,000 is multiplied by 20% to give a value of £25,000 for the brought-forward allowance.

There is also £225,000 of Linda’s unused NRB available to transfer (IHTM43000).

Example 3:

Fred’s wife died in 2009. She had no residence in her estate, which was valued at £20,000, when she died. As her estate used no RNRB, it is all available to carry forward (the brought forward allowance). This will be 100% of the residential enhancement available when Fred dies.

Example 4:

Joyce had been pre-deceased by two husbands (John and Allen) when she died in 2020, at which time the residential enhancement is £175,000.

John died in 2014 and his RNRB is £100,000 (because his death was before 6 April 2017). This is 100% of the RNRB.

Allen died in May 2019 when the RNRB was £150,000. By his will, he left his flat valued at £50,000 to his daughter, which utilised £50,000 of his available RNRB. Therefore £100,000 RNRB remains to be carried forward. This is 66.6667% (£100,000 ÷ £150,000) of the residential enhancement at the time of Allen’s death.

These two percentages added together (166.6667%) are greater than 100% and so the brought-forward amount at Joyce’s death will be 100% of the residential enhancement at her death (£175,000).

Example 5:

Jill was pre-deceased by two husbands (Jack and David) when she died in 2020, at which time the residential enhancement is £175,000.

Jack died in June 2017 when the RNRB was £100,000, and he left his flat (which had been his residence) valued at £80,000 to his daughter. This used £80,000 of his RNRB, leaving £20,000 to be carried forward. This represents 20% of the residential enhancement at the time of Jack’s death (£20,000 ÷ £100,000).

David died in May 2019, when the residential enhancement was £150,000. He left his flat (which had been his residence) valued at £125,000 to his grandson. This used £125,000 of his RNRB, leaving £25,000 to carry forward. This represents 16.6667% of the residential enhancement at the time of David’s death (£25,000 ÷ £150,000).

These two percentages added together (36.6667%) are less than 100%, and therefore the brought-forward amount at Jill’s death will be 36.6667% of the residential enhancement at her death, £64,167 (£175,000 x 36.6667%).