Downsizing relief RNRB worth more than house sold?

In certain cases is downsizing relief worth more than the value of house sold?

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I've just been working through a downsizing relief calculation and wonder if I have something wrong because the relief calculated is more than the value of the house sold which seems rather odd.  Client sold house for £120K in 2016.  They then bought a flat that they live in now worth £80K.  All assets (say £500K) will be left to children.  Here is my calculation:

Following the HMRC guidance, the downsizing relief would be calculated as follows if death is before flat sale:
i.    RNRB for the year in which the first property was sold is deemed to be £100,000 (because it was sold before the new legislation was introduced and called the ‘additional threshold’);
ii.    Value of the sold house was £120,000, which is more than the deemed RNRB, so 100% of RNRB is used for calculation below;
iii.    Value of flat is £80,000 and current RNRB is £150,000 which gives a percentage of 53.333% (of the current RNRB being used against flat value);
iv.    100% - 53.3333% is 46.6667% (46.6667% being the amount of the RNRB not being used against the flat);
v.    46.6667% x £150,000 (the current RNRB) = £70,000.  This is the ‘lost additional threshold’;
vi.    The downsizing relief is the lower of £70,000 each and the amount left to descendants.
Therefore, total RNRB incl downsizing relief appears to be £150K (£80K for the flat and £70K for the house) even though they only ever had property in the Estate worth £120K.

If there is no home in the Estate on death the calculation is as follows:
i.    RNRB for the year in which the first property was sold is deemed to be £100,000 (because it was sold before the new legislation was introduced and called the ‘additional threshold’);
ii.    Value of the sold house was £120,000, which is more than the deemed RNRB, so 100% of RNRB is available;
iii.    The downsizing relief is the lower of £150,000 and the amount left to descendants, so £150K.

What I just don’t get is that if in another situation someone only ever had a house worth £125K and died owning that (with other assets worth £325K or more), I believe the RNRB available would be limited to £125K.  However, working through the calculation, if someone downsizes from a house worth more than the £100K/£125K/ £150K/£175K (according to year of downsizing), they will be entitled to the entire RNRB on death, to set against other assets.  It  doesn’t seem right which is why I wondered if I’ve got something wrong.
 

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