How will my late wife’s estate affect my IHT?

Published by Ray Black on 15 May 2019.
Last updated on 17 May 2019

Q

I have been married twice. I have adult children from my first wife but no children from my second marriage. My second wife died leaving a negligible estate. I understand when I die, my estate will benefit from her inheritance tax (IHT) allowance, meaning I can hand on two times £325,000.

If I leave my home to my children, do I also benefit from my late wife’s IHT allowance for primary residences?

From:
SS/via email

A

Residence relief is only available to someone who leaves their main residence to direct descendants. HMRC’s definition is: “A direct descendant will be a child (including a stepchild, adopted child or foster child) of the deceased and their lineal descendants.”

Therefore, as your second wife had a ‘qualifying’ relationship with your children (as her stepchildren), your estate should be able to make a claim on your death to transfer the unused proportion of her additional residence nil-rate band (RNRB) much in the same way that the standard nil-rate band (SNRB) can be transferred.

If you have a large estate, (more than £2 million), the RNRB is reduced. For every £2 that your estate is over £2 million, the amount of residence relief available is reduced by £1.

For example, an estate worth £2.25 million reduces the relief available to zero, (2018/19 tax year). So if your estate is worth £2.25 million in the 2018-19 tax year, you’ll lose the entire main residence nil-rate band.

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