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RNRB re IHT Planning

Is buying an expensive house before downsizing smart IHT planning?

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This is me musing on my own IHT position and our next house move, but I may have misunderstood things so your collective wisdom is sought.

If I understand correctly (which I likely have not) if we downsize then my/my wife's RNRBs to be carried forward are currently  £175k each, as current house is worth more than £350k.We are advised that RNRBs are to be indexed by CPI so will grow over next 20/30 years (I am 60 and an optimist), but they can only grow to the value of our most expensive house ever before we downsize? So if current house is say £450k when sold then once the RNRB in future gets over £225k we each will be capped at £225k if our subsequent houses are smaller/worth less?

Accordingly, and I likely need this argument to use with my other half who is  currently viewing spending more on a house with disdain,  I need to argue,

"For IHT planning, my dear, we really ought to, if we sell the Swedish house, buy a more expensive house here. We ought not to downsize (despite fact kids are leaving and current house will be too big) , say we buy a large bungalow in Edinburgh ( no stairs as we age) something with a much bigger garden, double garage, workshop etc,  and once I then keel over maintaining it you can then downsize and whatever you sell it for will become the new upper cap re the future RNRBs available when you leave everything to the sprogs"

Ignoring how well the argument will sell with SWMBO, (eventual extra money to sprogs will be a strong selling point) is my interpretation correct, if we buy more expensive now do we create a higher possible maximum RNRB(subject to CPI)  if either held to death(value then)or we later sell to downsize(price achieved)  for the nursing homes , or is my logic flawed?

(Appreciate by time we need this the IHT legislation will likely have all changed, however I really want the double garage for my Scimitar , also somewhere to hide, and it is only cogent argument I can "create")

 

 

 

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By Tax Dragon
23rd Jun 2020 12:35

You are looking for a logically sound argument to use on your wife?

After all these years, you still don't understand us women very well.

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Replying to Tax Dragon:
Hallerud at Easter
By DJKL
23rd Jun 2020 12:53

Does not need to be that logically sound, just not incorrect, I doubt it will do much good anyway.

More seriously though, have I in effect understood correctly that having an expensive house within one's chain of houses at some point over the years raises the bar to where the CPI enhanced RNRB can climb?

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By Tax Dragon
23rd Jun 2020 17:56

I think there are some curiosities with downsizing relief (happens every time they legislate a simple idea in a complex way). However the simple idea is to bring you back to full RNRB ("the 100%") if you have downsized because that's what SWMBO has told you to do (and TBF you don't need your study any more, dear).

So, bad news for you, were you to downsize now, I think you would already qualify for the 100% (even the inflated future 100%), because you are already over the limit.

However, upsizing if you are below the limit would bring the (current and therefore future) 100% into play, so could I guess be one way to swap one tax liability (IHT) for another (SDLT). [And of course you get IHT relief for the SDLT... maybe she'd like that?! :-p]

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Hallerud at Easter
By DJKL
23rd Jun 2020 21:00

I do need the study, I now have a model railway in it, but once the kids go we will have three rooms they use going spare.

I know we qualify for the 100% relief right now as current house would sell for over the current 2x 175k ( 100%relief ) threshold if sold now, it is more will the value when we say sell in next few years be greater than 2x the limit when the last of us dies in the future.

In say 25 years time (if there is still such a thing as RNRB) and CPI runs at say 3% compound for 25 years the current 175k RNRB becomes £366,411 each, so £732,822 for the pair. If the house we move to has not reached that figure in 25 years time we will surely only get the higher of the price we get for our current house now or the value of our replacement house in 25 years, the value of the house we sell now surely freezes for RNRB purpose when we sell it.

If this is correct surely buying bigger now increases the chance of maxing the RNRB (I would be happy to never downsize, merely give up the Victorian three storey thing we are currently in for something lower down but with more garden and garages etc).

Or is my understanding of all this still incorrect?

On the LBTT cost, given the current house is the only one we ever bought together since we married 30 years ago next month (I owned a flat when we were married which we lived in for first seven years) moving does not seem that wasteful, we do both now wantto think about something without stairs but all we are arguing about is cost, I want to blow existing house value plus holiday house proceeds on one last move to the most expensive house we ever own, other half more wants to start the downsizing on the next (and maybe last) house move.

I think I need to do some more reading.

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Replying to DJKL:
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By Tax Dragon
23rd Jun 2020 21:10

It (like the transferable NRB) is based on percentages, not fixed values. You are over 100% now, so a sale now bags a future 100% should your new home end up below the RNRB maxima.

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Replying to Tax Dragon:
Hallerud at Easter
By DJKL
23rd Jun 2020 21:49

So in effect any couple who at any time sell a house for more than 2x the then limit qualify when they eventually die?

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By Tax Dragon
23rd Jun 2020 22:38

I think that's the theory. In reality, what with transferability, convoluted drafting and the quirks of life, you could probably come up with scenarios where it didn't quite work out like that. (You've probably guessed that I'm trying - and failing- to remember a particular point I came across in practice. If it comes back to me - and if it's relevant - I'll try to remember to post it.)

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Replying to Tax Dragon:
Hallerud at Easter
By DJKL
23rd Jun 2020 23:58

Thanks

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