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.

7.1. Maximum RNRA

The maximum RNRA is £200,000 in 2017-18 (£100,000 residential enhancement, and £100,000 brought-forward allowance) and £350,000 in 2020-21 (£175,000 residential enhancement, and £175,000 brought-forward allowance): see 1.7 above.

However, these are maximum figures. The RNRA may be less, even nil, as:

(a) the RNRA cannot exceed the value of the QRI which is closely inherited, i.e. NV/100 (see 7.3 below) plus the downsizing addition;
(b) the RNRA cannot exceed the value of the deceased’s chargeable estate on death (“VT”) because, if it did, the excess would be exempt in any event;
(c) if the value of the estate on death (“E”) exceeds the taper threshold (“TT”), currently £2m, the RNRA cannot exceed the adjusted allowance, i.e. the default allowance, after tapering which reduces the default allowance by £1 for every £2 above TT.

7.2. Value of QRI

For the purposes of downsizing, and also for determining the RNRA, it is often necessary to determine the value of a QRI. In calculating that value:

(a) liabilities charged against the QRI are deducted from the value of the QRI (IHTA 1984, s. 162(4)); and
(b) the value of the chargeable transfer on death attributable to the QRI is the value reduced by any agricultural or business property relief (that being the effect of IHTA 1984, s. 8(1)(b)).

George dies owning a farmhouse which he leaves to his son, George Jnr. The value of the farmhouse is £1m. There is a mortgage secured against the farmhouse of £200,000. The farmhouse qualifies for APR on its agricultural value, i.e. 70% of its value.

The value of the QRI that is closely inherited is, therefore, £240,000, i.e. 30% of the net value of £800,000.

7.3. NV/100

A key value is NV/100. If:
(a) P’s estate immediately before death includes a QRI, and
(b) N% of the interest is closely inherited, where N is a number:
(i) greater than 0, and
(ii) less than or equal to 100,

NV/100 means N% of so much (if any) of the value transferred by the transfer of value under IHTA 1984, s. 4 on the person’s death as is attributable to that interest (IHTA 1984, s. 8E(1)).

P dies in 2020/21 leaving his residence, worth £300,000, as to 50% to his children absolutely, and as to 50% upon discretionary trusts. P’s estate on death is £1m.

50% of the QRI is closely inherited. Therefore, NV/100 is equal to 50% of the value of the estate that is attributable to the QRI (£300,000) i.e. £150,000.

7.4. RNRA in different factual scenarios

The legislation prescribes, in a number of different factual scenarios, both:

(a) the RNRA on the death of P on or after 6 April 2017; and
(b) the amount which is available for carry-forward, following P’s death, for the purposes of calculating the brought-forward allowance on the death of P’s surviving spouse or civil partner.

HMRC have published a calculator so as to determine the amount of the RNRA: https://www.tax.service.gov.uk/calculate-additional-inheritance-tax-threshold.

If the estate includes a QRI, and at least some part of that QRI is closely inherited, the RNRA is determined by IHTA 1984, s. 8E (see 7.6. below). Where, however, the estate does not include a QRI, or includes a QRI, but none of it is closely inherited, the RNRA is determined by IHTA 1984, s. 8F (see 7.5. below).

7.5. Estate does not include a QRI, or none that is closely inherited.

RNRA: Nil if no downsizing addition (IHTA 1984, s. 8F(2)). Amount equal to the downsizing addition if addition applies (IHTA 1984, s. 8FD(3)).
Carry-forward: Amount equal to default allowance, or adjusted allowance (no downsizing addition) (IHTA 1984, s. 8F(3)).

Carry-forward: No amount, if downsizing addition at least equal to default, (downsizing addition) or adjusted allowance (IHTA 1984, s. 8FD(4)).
Amount equal to difference between downsizing addition and default, or adjusted, allowance, if the downsizing addition is less than such allowance (IHTA 1984, s. 8FD(5) and (6)).

7.6. Estate includes QRI, part at least of which is closely inherited

7.6.1. Value of estate less than or equal to taper threshold (currently £2m) and NV/100 plus any downsizing addition is less than default allowance.
IHTA 1984, s. 8E(2), (6), (7) and s. 8FC(2).

RNRA: NV/100 plus any downsizing addition (or, if lower, the value of the chargeable estate).

Carry-forward: Amount equal to difference between NV/100 plus downsizing addition (or, if lower, the value of the chargeable estate) and the default allowance.

Joe dies in 2020-21 leaving a QRI to his children worth £300,000, and the remainder of his estate, worth £500,000, to his wife, Rose, who survives him. Joe’s estate is entitled to a default allowance of £350,000, including a brought-forward allowance of £175,000 from the death of his former wife, Ruby. There is no downsizing addition.

The RNRA will be NV/100 (£300,000), and the amount available for carry-forward will be £50,000.

If Joe had left 50% of his QRI to Rose, the chargeable estate would only have been £150,000, and that would have been the RNRA. The amount available for carry-forward would have been £200,000.

7.6.2. Value of estate less than or equal to taper threshold (currently £2m) and NV/100 plus any downsizing addition is greater than or equal to default allowance.

IHTA 1984, s. 8E(3), (6), (7) and s. 8FC(2).

RNRA: Default allowance or, if lower, the value of the chargeable estate.

Carry-forward: None.

Joe left a QRI worth £800,000 to his children. He was married to Rose at the date of his death, but had not been previously married. His default allowance on death was £175,000. His estate on death was £1.5m.

The RNRA is the amount of Joe’s default allowance (£175,000). No amount is avail.able for carry-forward.

7.6.3. Value of estate more than taper threshold (currently £2m) and NV/100 plus any downsizing addition is less than the adjusted allowance.
IHTA 1984, s. 8E(4), (6), (7) and s. 8FC(2).

RNRA: NV/100 plus any downsizing addition (or, if lower, the value of the chargeable estate)
Carry-forward: Amount equal to difference between NV/100 plus any downsizing addition (or, if lower, the value of the chargeable estate) and the adjusted allowance.

Joe dies with an estate worth £2.1m. His default allowance, including a brought-forward allowance, is £350,000. He leaves a QRI, worth £200,000 (NV/100) and a downsizing addition of £50,000 to his children, and the remainder of his estate to his surviving spouse, Rose.
The default allowance of £350,000 is subject to tapering. It is reduced from £350,000 by £50,000 (£2.1m – £2m x .) to produce an adjusted allowance of £300,000 which is, however, greater than NV/100 plus the downsizing addition (£250,000 in total). The RNRA will, therefore, be £250,000. The amount available for carry-forward will be £50,000.

7.6.4. Value of estate more than taper threshold (currently £2m) and NV/100 plus any downsizing addition is greater than the adjusted allowance.

IHTA 1984, s. 8E(5), (6), (7) and s. 8FC(2).
RNRA: Amount equal to adjusted allowance or, if lower, the value of the chargeable estate.
Carry-forward: No amount.

Joe died with an estate worth £2.1m. His default allowance, including a brought-for.ward allowance, is £350,000. He leaves a QRI, worth £700,000 to his children, and the remainder of his estate to his surviving spouse, Rose.

The RNRA is an amount equal to the adjusted allowance, in this case £300,000, i.e. £350,000 Ð (£2.1m – £2m x .)). There is no amount available for carry-forward. If the QRI were left as to £200,000 to the children, and as to £500,000 to Rose, and the rest of the estate to Rose, the RNRA would be £200,000.