Even where an enhanced RNRB can be claimed on second death, a net estate of £2.7m or more in 2020/21 will result in the disappearance of the RNRB. Strangely, the draft legislation in the Finance Bill seems to apply the £2m limit to the value of the estate on death.
Thus, it would appear someone with an estate of, say, £2.5m could make a potentially exempt transfer (PET) of £500,000 or more just before death to ensure the estate could benefit from a full RNRB, even though the PET would fail on their death within seven years. This may be an unintentional drafting omission that could be corrected by the time the Finance Act reaches the statute books.
It should be noted that, despite the fact many people cannot benefit from some or all of the RNRB, they will still suffer the extension of the freeze of the basic £325,000 nil-rate band until April 2021.
Difficult message
There are numerous restrictions and caveats to the apparent generosity of the chancellor but, when all is said and done, £1m-worth of nil-rate bands will become available to some people in 2020/21. So it does seem clear that by the time we get to the end of the current parliament, there will be fewer people whose estates are subject to IHT and, obviously, the total of receipts from IHT will have fallen by then. Or does it? Not according to the Office for Budget Responsibility.
Despite the introduction of the RNRB, not only will total IHT receipts increase each year throughout the duration of this parliament but also the number of estates suffering IHT will increase each year. According to HM Treasury’s summer Budget report: “The number of estates making a contribution to inheritance tax or its predecessor will continue to be higher at the end of the decade than in any year between its introduction and 2014/15.”
This may be a difficult message for advisers to convey to their clients as it seems counterintuitive. Without suitable advice and forward planning, more clients will be suffering a greater amount of IHT, even with an apparently generous £1m-worth of nil-rate bands available to some of them in 2020/21. Additionally, the introduction of the RNRB will result in greater complication, meaning that more and more taxpayers will value good quality advice.
Contrary to expectations, perhaps, the RNRB will result in an even greater need for tax planning and professional advice.
