NOTE: This article was published in December 2018 and reflects the law as it stands on the date of publication and not at any later date. 

The paper can be downloaded as a PDF here.

5.1. Introduction

In addition to the “residential enhancement”, the estate of a person (P) dying on or after 6 April 2017, may be entitled to a “brought-forward allowance” if and to the extent that the residential enhancement of a “related person” (R) was not used on R’s death. A “related person” means a person other than P where the other person dies before P, and immediately before that other person dies, P is the other person’s spouse or civil partner (IHTA 1984, s. 8G(2)). That part of the RNRB, not used on R’s death, can, therefore, be brought-forward, to be utilised on P’s death.

The RNRB may have been 100% unused on R’s death, because R did not own a QRI, or because such a QRI was not closely-inherited on R’s death, or because R died before 6 April 2017 when the RNRB first became available. Alternatively, a percentage (less than 100%) may have been unused, e.g. if the value of the QRI which was closely inherited was less than the RNRB on R’s death.

The unused part of the RNRB is calculated as a percentage of the residential enhancement on P’s death. However, that percentage cannot exceed 100% (which might otherwise be the case if P had two predeceasing spouses). If, therefore, P dies in 2020/21, the maximum brought-forward allowance will be £175,000. This will be added to P’s residential enhancement of £175,000, to produce a “default allowance” of £350,000.

5.2. Calculation of brought-forward allowance

There are 4 prescribed steps for calculating the amount of the brought-forward allowance (IHTA 1984, s. 8G(3)(a) to (d)).
Frank dies before his wife, Janet, in 2019/20, with an estate of £750,000. His estate does not include a QRI because he and his wife lived in rented accommodation at the date of his death. Alternatively, his estate does include a residence, worth £500,000, which passes to Janet (by will or survivorship). On either basis, Frank’s maximum residential enhancement on his death in 2019/20 (£150,000) is unused.

Janet dies in 2020/21, with an estate of £1m. She leaves her residence (worth £550,000) to her children. The residential enhancement on her death is £175,000.

Step 1

The first step is to calculate the amount that is available for carry-forward from the death of a related person, in this case, Frank. For these purposes, it is necessary to apply IHTA 1984, sections 8E, 8F, 8FD and 8G(4) and (5) which prescribe the amount which is available for carry-forward, dependent upon a number of differ.ent factors (see 7.5 and 7.6 below). On the above example, the amount available for carry-forward is the full amount of Frank’s default allowance on his death of £150,000, which was wholly unused (IHTA 1984, s. 8F(3)).

Step 2

The second step is to express each amount, available for carry-forward, as a percentage of the residential enhancement at the death of the related person concerned, i.e. Frank. That percentage is 100%, because the amount available for carry-forward (£150,000) represents 100% of the residential enhancement on Frank’s death (£150,000).

Step 3

The third step is to calculate the percentage which is the total of those percentages. There is, in this case, only one percentage, i.e. 100%.

Step 4

The amount that is that total percentage of the residential enhancement at Janet’s death is her brought-forward allowance or, if that total percentage is greater than 100%, Janet’s brought-forward allowance is the amount of the residential enhancement at her death. Her brought-forward allowance is, therefore, 100% of the residential enhancement on her death, i.e. £175,000, provided that it is claimed.

If Frank had left a QRI, worth £90,000, to his son, then £60,000 of his default allowance would have been available for carry-forward, representing 40% of the default allowance of £150,000. On Janet’s death, her estate would be entitled to a brought-forward allowance of 40% of £175,000, i.e. £70,000.

5.3. Survivor’s estate

It is not necessary, in order to claim the brought-forward allowance, that the survivor (Janet in the example in 5.2 above) should leave a QRI to her direct descendants, or that she should own a QRI at the date of her death. Her estate will still be entitled to a brought-forward allowance of £175,000. However, her RNRB will be nil, if the value of the QRI and/or downsizing addition which is closely inherited on her death is nil (IHTA 1984, s. 8F(2), 8FD(3)).

Janet’s estate can, therefore, only make full use of her total RNRB if a QRI, or other assets sufficient to claim the downsizing addition, worth at least £350,000, are closely inherited by her direct descendants. Her RNRB may also be reduced or eliminated if her estate exceeds £2m (see 4 above) and the brought-forward allowance may also be reduced or eliminated if the value of Frank’s estate exceeded £2m (see 5.5 and 5.6 below).

5.4. Death of related person before 6 April 2017

Where the related person (R) died before 6 April 2017, the RNRB will not have been used at all, as it was not available in respect of deaths before that date. An amount equal to £100,000 is deemed to be available for carry-forward for the benefit of P’s estate (IHTA 1984, s. 8G(4)(a)). The residential enhancement on R’s death is also deemed to be £100,000 (IHTA 1984, s. 8G(4)(b)). If, therefore, the residential enhancement on P’s death is, say, £175,0000, the brought-forward allowance will be 100% of £175,000, i.e. £175,000 (IHTA 1984, s. 8G(3)).

The brought-forward allowance will, however, be withdrawn on a tapering basis in the event that the value of R’s estate exceeds £2m (see 5.5 below).
Where, therefore, R died before 6 April 2017, with an estate not exceeding £2m, the brought-forward allowance will always be 100% of P’s residential enhancement.

5.5. Estate in excess of £2m: death before 6 April 2017

Where R’s death occurred before 6 April 2017, and the value of R’s estate exceeded £2m, the amount of the brought-forward allowance will be withdrawn on a tapering basis. The amount available for carry-forward is reduced (but not below nil) by RPE, i.e. (the value of R’s estate – £2m) /2 (IHTA 1984, s. 8G(5)).

If, therefore, the value of R’s estate was £2.2m, the amount otherwise available to be carried forward, i.e. £100,000 (see 5.4 above) is reduced, by £100,000, to nil. In short, no amount can be carried forward if the value of R’s estate exceeded £2.2m. On an estate of £2.1m, only £50,000 of the amount which would otherwise be avail.able for carry-forward (£100,000) can be carried forward, resulting in a 50% uplift in the residential enhancement on P’s death.

5.6. Estate in excess of £2m: death on or after 6 April 2017

Where R dies on or after 6 April 2017, the brought-forward allowance will also be subject to tapering if R’s estate exceeds £2m. If R dies in 2020-21 with an estate of at least £2.35m, there will be no amount available to be carried forward.

Frank dies in 2020-21, with an estate of £2.35m, all of which he leaves to his wife, Janet, who survives him. Frank was not previously married, so his estate does not have a brought-forward allowance.

The amount available for carry-forward would, subject to tapering, be equal to Frank’s “default allowance”, i.e. the total of his residential enhancement (£175,000) and his brought-forward allowance (nil). However, where the value of Frank’s estate is greater than the taper threshold (£2m) only the amount of his “adjusted allowance” is available for carry-forward (IHTA 1984, s. 8F(3)(b)). Frank’s adjusted allowance, on an estate of £2.35m, is nil, since there is a reduction of £1 for every £2 above £2m (IHTA 1984, s. 8D(5)(g)). Therefore, the amount available for carry-forward will be nil.

Frank died in 2020-21 with an estate of £2.35m, leaving a QRI worth £100,000 to his son, and the remainder of his estate to his wife, Janet. He had not previously married.

In this case, part of the RNRB has been used on Frank’s death. Here again taper.ing occurs, so that there is no amount available to be carried forward. The amount available for carry-forward will be the difference between the value of the QRI that is closely-inherited on Frank’s death (£100,000) and Frank’s adjusted allowance, i.e. after tapering (IHTA 1984, s. 8E(4)). Frank’s default allowance of £175,000 will be reduced to an adjusted allowance of nil, in the case of an estate worth at least £2.35m (IHTA 1984, s. 8D(4)(g)). As nil is less than £100,000, no amount can be carried forward.

5.7. More than one predeceasing spouse

The brought-forward allowance can derive from more than one predeceasing spouse or civil partner of the deceased, so long as the marriage or civil partnership was still in force on the first death (IHTA 1984, s. 8G(2)). However, the brought-forward allowance can never exceed the amount of the survivor’s residential enhancement.

Jenny dies in 2020/21 when her residential enhancement is £175,000. She was pre.deceased by two husbands: Jack, who died in 2014, and Jeremy who died in 2019, leaving the whole of their estates to Jenny. The estates of both Jack and Jeremy were worth less than £2m.

The brought-forward allowance from Jack is 100% of Jenny’s residential enhancement (see 5.4 above). The brought-forward allowance from Jeremy is also 100% of Jenny’s residential enhancement, as his RNRB was wholly unused. The aggregate percentage is 200%. However, the brought-forward allowance is limited to 100% of Jenny’s residential enhancement of £175,000 (IHTA 1984, s. 8G(3)(d)).

5.8. Claim for brought-forward allowance

The brought-forward allowance will be nil if no claim is made for it under IHTA 1984, s. 8L (IHTA 1984, s. 8G(3)). The allowance must, therefore, be claimed, if it is to be available. IHT436 should be used.

The claim may be made by the deceased’s personal representatives within “the permitted period” or, if no claim is so made, by any other person liable to the tax chargeable on the deceased’s death within such later period as an officer of HMRC may in a particular case allow (IHTA 1984, s. 8L(1)). The trustees of an IPDI trust for the deceased could, therefore, make a claim, if the personal representatives fail to do so within the permitted period, as they are liable for the IHT on the death of the IPDI beneficiary (IHTA 1984, s. 200(1)(b)).

The permitted period in the case of a claim by personal representatives is (IHTA 1984, s. 8L(2)):
(a) the period of 2 years from the end of the month in which the deceased dies; or

(b) (if it ends later) the period of 3 months beginning with the date when the personal representatives first act as such; or

(c) such longer period as an officer of HMRC may in a particular case allow.

If, therefore, a grant is only obtained 23 months after death, there having been no intermeddling in the intervening period, the claim can be made within 26 months of death.

A claim, made within either of the periods in (a) or (b) above, may be withdrawn no later than one month after the end of the period concerned (IHTA 1984, s. 8L(3)). It is not clear why the PRs, or other person chargeable, would want to withdraw a claim.

5.9. Claim where series of deaths

There are provisions (IHTA 1984, s. 8L(4) to (7)) for a person’s personal representatives to claim a brought-forward allowance for a person, whose estate has not made such a claim, within an “allowed period”, i.e. where:

(a) no claim has been made for a brought-forward allowance for a person (“P”);
(b) the amount of the charge to IHT on the death of another person (“A”) would be different if a claim had been made for a brought-forward allowance for P; and
(c) the amount of the charge to IHT on the death of P, and the amount of the charge to tax on the death of any person who is neither P nor A, would not have been different if a claim had been made for brought-forward allowance for P.

Adrian (A) dies in 2021-22 predeceased by his late wife, Petra (P), who had died in 2019-20. Petra had been married before to Jack, who died in 2005, leaving the whole of his estate to Petra. Petra left a QRI in her residence, worth £250,000, to her children by Jack, and the remainder of her estate, worth £300,000, to Adrian for life.

Petra’s personal representatives were entitled to claim a brought-forward allowance from Jack’s estate of £150,000. However, they did not make such a claim as her total chargeable estate was worth less than her SNRB (£325,000), TNRB (£325,000) and residential enhancement (£150,000).

Adrian’s personal representatives can make a claim for a brought-forward allowance for Petra, if (a) the amount of the IHT chargeable on his death would be different (presumably less) had Petra’s personal representatives claimed a brought-forward allowance for Petra, and (b) the amount of IHT on the deaths of Petra and Jack would not have been different if a claim had been made for a brought-forward allowance for Petra.

These conditions are satisfied on the above example. It would have made no difference to the IHT payable on Petra’s death (or, indeed, Jack’s) if a brought-forward allowance had, or had not, been claimed on Petra’s death. However, if it had been claimed, that claim would save IHT in Adrian’s estate. The brought-forward allowance is nil if no claim is made to such an allowance (IHTA 1984, s. 8G(3)). If a claim had been made by Petra’s personal representatives to the brought-forward allowance from Jack’s estate, her default allowance would have been increased by 100% from £150,000 to £300,000. The amount available to be carried forward for the benefit of Adrian’s estate would have been the difference between the value of the chargeable estate which was closely inherited on Petra’s death (£250,000) and the default allowance on Petra’s death (£300,000), i.e. £50,000 (IHTA 1984, s. 8E(2)). Adrian’s personal representatives would, therefore, have been able to claim 50,000/300,00 x £175,000 (£29,166.66) as the brought-forward allowance in his estate, if Petra’s personal representatives had claimed the brought-forward allowance from Jack’s estate.

The effect of IHTA 1984, s. 8L(4) to (7) is that Adrian’s personal representatives can, notwithstanding the failure of Petra’s personal representatives to do so, themselves make a claim to the brought-forward allowance of £29,166.66. This will make no difference to the IHT payable in Petra’s estate, but will save some IHT in Adrian’s estate. The claim must be made during the “allowed period” of 2 years from the end of the month in which Adrian dies or (if it ends later) the period of 3 months beginning with the date on which his personal representatives first act as such, or such longer period as an officer of HMRC may in the particular case allow.