BR Guide FINAL 20 Feb

53 CASE STUDIES SCENARIO: John has a substantial estate valued at well over £2 million, including a residence with a value of £750,000. He has three children, but is unmarried. He retains the mental capacity to make gifts. SCENARIO: Mrs Smith’s husband died in July 2017 (2017/18 tax year). He did not use his NRB or RNRB (their house is valued at £1 million). RNRB, GIFTS AND BR RNRB APPLICATION John does not want his RNRB to be tapered away (£1 relief lost for every £2 estate value above £2 million) This takes the value of John’s overall estate to below £2 million so John regains the RNRB*. BR Qualifying THIS LEADS TO 100% IHT RELIEF JOHN GIVES AWAY THE BR QUALIFYING INVESTMENT TO HIS BROTHER, MARK JOHN DIES IN FOUR YEARS** IN 2021 £500,000 BR The BR investment saved IHT of £200,000 and his estate benefits from the RNRB of £175,000 and, therefore, the IHT savings are £270,000. * If they are held at the date of death, BR qualifying investments remain part of the estate value calculation for the purposes of the RNRB. The gift could be to a person or to a trust, as appropriate. ** The gift is a failed PET because John did not survive seven years from the date of the gift. However, failed PETs are not added back into the estate for RNRB purposes and the relief, gained by avoiding the taper, is retained. If the asset qualified for BR in John’s hands at the date of the gift and is retained by Mark until the date of John’s death and it still qualifies for BR at the date of death, it retains its BR status in John’s estate and there is no additional IHT due. With no IHT planning With a BR based estate planning service PROPERTY £1,000,000 £1,000,000 OTHER ASSETS £1,000,000 £1,000,000 ESTATE PLANNING SERVICE £0 £500,000 TOTAL ESTATE £2,000,000 £2,000,000 NIL RATE BAND £650,000 £650,000 RESIDENCE NIL RATE BAND £200,000 £200,000 TOTAL ALLOWANCE £850,000 £850,000 IHT FREE ASSETS £0 £500,000 TAXABLE ESTATE £1,150,000 £650,000 IHT PAYABLE £460,000 £260,000 RESIDUAL ESTATE £1,540,000 £1,740,000 IHT SAVING £0 £200,000 PLANNING SUMMARY 20 MONTHS TWO YEAR QUALIFYING PERIOD 4 MONTHS £500,000 INVESTED INTO POTENTIALLY BR QUALIFYING INVESTMENTS JAN 2018 WIFE DIES. LEAVES HOUSE TO HER SON JULY 2017 HUSBAND DIES. INVESTMENT PASSES TO HIS WIFE BR can still provide substantial IHT savings, even with the RNRB applied at the 2017/18 rate. £1m HOUSE VALUE HE MAKES A BR INVESTMENT OF £500,000 CASE STUDY 9 CASE STUDY 10