BR Guide FINAL 20 Feb

58 CASE STUDIES 59 CASE STUDIES £600,000 BR QUALIFIYING SHARES Discretionary trust BENEFICIARY: WANDA £175,000 RNRB THRESHOLD RATE IN 2020-21 If we assume 2.5% CPI for each year... Calculation of RNRB available (before any taper) ( ) £205,000 THE RNRB THRESHOLD RATE AT THE DATE OF THE DEATH OF THE SURVIVING SPOUSE £100% (THE PROPORTION OF JIMMY’S UNUSED £125,000 RNRB) £205,000 RNRB THAT WANDA CAN USE IN ADDITION TO HER £205,000 ALLOWANCE There is an IHT liability of £697,834 on Wanda’s death. (£600,000 BR is claimed for the shares in the company inherited from Jimmy, the couple’s full NRB of £735,415 (NRB will increase by CPI after 2020/21. Assumed CPI of 2.5% p.a) is applied, plus £20,000 of RNRB, leaving an estate of £1,744, 585 liable to IHT at 40%) But does not qualify for the full RNRB as her estate is too large causing the RNRB to taper away. If the £600,000 had not been in trust, even if it was BR qualifying and not liable to IHT, it would have been considered as part of the estate. But removal of the £600,000 allows further use of some of the RNRB by reducing the estate value to £2.5 million. RNRB Taper: £1 RNRB lost for every £2 of estate value over £2,320,000 (Taper allowance will increase by CPI after 2020/21. Assumed CPI of 2.5% p.a) RNRB available = £410,000 RNRB Taper on £780,000 above £2,320,000 = £390,000 So, only £20,000 of RNRB remains available RNRB taper: £1 RNRB lost for every £2 of estate value over £2,320,000 RNRB available = £410,000 RNRB taper on £180,000 above £2,320,00 = £90,000 So, £320,000 of RNRB remains available Alternatively... JIMMY’S WILL Using the trust therefore has a double tax saving benefit in these circumstances. There is an IHT liability of £577,834 on Wanda’s death. (£3.1 million less £600,000 successfully gifted into trust, less £735,415 NRB, less £320,000 RNRB leaves £1,444,585 subject to IHT @ 40% = £577,834 payable) £1.5m PROPERTY £1m OTHER ASSETS WANDA’S ESTATE: £2.5 MILLION £600,000 BR QUALIFIYING ASSETS TAKEN OUTSIDE ESTATE This takes the shares and their proceeds of sale outside Wanda’s estate