The ICAEW believes families are likely to require professional advice on the rules even in cases of a “simple estate passing to children”.
The accountancy body said the new guidance, ‘How downsizing, selling, or gifting a home affects the additional Inheritance Tax threshold’ is “only slightly less impenetrable than the legislation” itself, highlighting that real life complications involving estates valued above £2m and the nil rate band and transferable rate band “are ignored” in the supposedly explanatory note from HMRC.
Guidance on trusts and unused thresholds
The new guidance for the Residence Nil Rate Band (RNRB), plus two related pieces of updated IHT guidance on trusts and inheritance tax and transferring unused tax-free thresholds, have been published to help individuals and their advisers decipher the complex rules governing the RNRB system.
The downsizing provisions were created alongside the RNRB, which came into effect in April 2017, so people were not discouraged from moving to a smaller home in order to raise capital for a specific need, such as paying for care home fees.
They may have been unwilling to downsize under the RNRB system alone, because moving to a smaller home could reduce the IHT relief for which they were eligible.
Professional help needed
However, HMRC itself acknowledges that many people will require professional help and advice in order to get the most benefit from the RNRB and associated downsizing provisions, particularly in circumstances where trusts have been used.
It states in its own guidance: “The downsizing rules are complicated. … This guide explains the basic rules, but it can’t cover the more complex situations, for example, where trusts are involved. You might want to get professional advice about how to work out the additional threshold in these situations.”
The ICAEW said: “The policy design is extremely complex and will force many lay executors to engage professional help in what should have been a simple estate passing to children.”
