Residence Nil Rate Band and Inheritance Tax

Hello. Welcome everybody. I'm very pleased to welcome you to today's session through data law. My name's after Mahmoud and I'll be taking you through this session today a buy side session where were effectively going through uh answering some of the questions, some of the essential questions when it relates to the use of the residents near rate band and had this then links in with inheritance tax generally. Now, as you can imagine, uh, there will be certainly a lot of planning which will be done in so far as assisting insofar as inheritance tax planning throughout the process. And one of the aspects that there will be discussions on is the use of the application of and the effectiveness of the residents know rate band insofar as that's concerned. So the aim of today's session is to work through some slides with you to bring you up to speed with not just the residents, no great man, but also some of the other exemptions and release that will sometimes be available when one is inheritance tax planning. So to try and see how this then fits in 40 proper practitioner who is generally advising on this. So I'm going to be going through the application of the residents allowance, which many of you will be aware has been effective as from the 7th of April of 2017. And I'm going to be looking at who comes within the definition of direct descendants, for example, because that's a very extended definition in terms of who can then benefit in that regard will be looking at how do you residents new wave band and fits in with the unused you're right band, particularly insofar as using previous years on news relief and what do we actually mean by the residents home? So those are some of the questions as well as others that will be answering in this by sai session with you. I have referred to various elements from uh, the uh h M C T S and HMRC website in terms of some of the issues and therefore there is the acknowledgement here From the current copyright and all sort of DFCS, corporate author. And we're looking at the size of August 2021. So really, I wanted to really first and foremost, start off with giving you some of the essentials of the residents, no great band. So this is a relief that has become available uh just over four years ago, sixth of april 2017. And it's available as long as the, these conditions are met. So firstly, the person concerned the person you're dealing With in terms of the probate and must have died on or after six April 2017. Uh that person must have had a home or share the home. And that home must house there must have been included uh in that their estate as to how their beneficiaries and inherit doesn't matter too much as we'll see later. It could be through the, well, could be food testes, it could be so, survivorship, but as long as they inherited the house or part of it, even then that's where the residents know a band could be, could be then utilized. The homeland like say a house. There must have been inherited by the persons direct descendants and don't have to have shared, inherited all of the house. It may be the only share of it, for example, a proportion of it and shortly they'll be going through with you won't mean mean by direct descendants and there is an extended definition of who comes within that. Now the other thing to bear in mind is the person who's died than who you're dealing with the pro back for the value of their state must ordinarily Not have been more than £2million if it is this is they're told to gross estate. If it's worth more than two million then although the residents know rate band is still applicable. Any unused transferred residents know rate band is then going to be withdrawn or tapered. So an amount above that will be tapered and I'll go through that with you later. And the other thing is a person is entitled to claim. The residents know rate band, even if they have downsized To a less valuable home or if they sold it for example, they gave it away after seven July 2015. So it would be relevant even in those situations also. So these these are some of the essential conditions that need to bear in mind in looking to see whether or not the residents in the right band will even be applicable. And in terms of the rates then uh these have been gradually increased over the last four years. So effectively, when this first then came in, In fact the first year it came in 2017, the relief was only £100,000 at that stage. Then for 2018, for that tax series, it was 1-5. So for Uh certainly deaths tune in that tax year, then 40 tax year, 2019, it went up 250 2000. So you're actually looking at the year of death in terms of the tax year that the person dies in to see what amount of relief is available. And finally, For those persons who died between the Taxi 2020 and 2021. So from six April 2020, uh thereafter, you can claim a maximum relief which is £175,000. And in the recent budget that many of you will know, the Chancellor has said that the both, for example, the pension lifetime allowance and also the residents know rate band in terms of debate will continue to be the case certainly until 2025 but most likely until the end of the tax year, fifth of april 2020 six. So certainly for the next four years, it's it's anticipated that this will remain five years rather, I should say that this will remain the position. Now, if you are going to be claiming the relief then the form that you would be using as H T 435. So those of you who are familiar with this will know that that's the former filling. It's easily available from the, from the H M. I'll see website and if you're going to cough dot UK, you'll be able to access a lot of these documents on there in any event. And he used any previous unused new rate bands or from a deceased spouse or civil partner, for example, Which is available, of course. Uh even before this relief became available that you would be using for my 64 3 six. Okay, so those other forms and I'll be going through uh the how this actually this scheme works shortly with you. Now, what I want to do then is to try and put this relief into context and really to see how this ties in with some of the other exemptions and release that one would then be relying upon when it comes to inheritance tax planning. So many of you who may well be power practitioners, some of you who maybe practitioners in other areas, sometimes practitioners practicing and say matters related to family law, for example, welfare benefits. Then of course, practitioners need to know about the availability of different types of release when advising also, and therefore it's important, I would suggest to know about other forms of exemptions and released that available When one is looking at inheritance tax planning. And one of the main types of exemptions is the spouse and registered civil partner exemption. Now, as you know that both during lifetime and indeed upon death, if any property is included in the estate for inheritance tax purposes, which was then given gifted to the spouse or civil partner. So therefore it passes to deceased spouse or civil partner, either during a lifetime or indeed upon death, regardless of how it was transferred to whether it was by virtue, it turns out a will or under the testes, a ruse on the sections for 46 of the Administration of States Act in 1925, in terms of the older distribution or through survivorship, through joint tenancy in law and equity. Then, if the property was to pass through any of these methods, then that's where you'll be able to utilize the spouse or registered civil partnership exemption. And of course, many of you will know that since five December 2019, civil partnership has now also been opened up to opposite sex couples. Prior to that, We had the Civil Partnership Act of 2004 which came to effect in December 2000 five, but that was limited to enable a civil partnership only for same sex couples. But since the Super partnership Amendment provision that came in 2000 and 19, opposite sex civil partnership has been permitted. And also you'll be aware that in so far as uh marriage marriage uh includes of course both uh same sex and opposite sex couples. We have the married same sex couples act of 20 13, which came into effect on 29 March 2014. So in that respect, you can see the need for equality insofar as that is concerned. And that ties in of course with the equality act. So putting this simply if say you've got a situation where husband during his lifetime decides to ah gift any amount of monies or property otherwise to his wife. Then when it comes to dealing with his estate after his death, whatever amount he gifted whether it was uh whatever amount it was that you will be able to take advantage of the spouse exemption. So that wouldn't they need to form part of the calculation in terms of his estate. And I'm going to see how this ties in with the position with the residents near rate band very shortly. There are of course other forms of release as well. And just before we look at those, I just wanted to really put into context for you how the unused annual rate band works because that then you need an understanding of that to then be able to understand how the residents know rate band works. So putting it simply do you can use your rate band. Is this this is where by as long as the second spouse that upon one the second spouse dies or the second civil partner dies, as long as they died on or after the ninth of October 2007. Then you can take advantage of the unused annual rate band. So what I mean by that is to say the first spouse died say 10 years previously and they then left a proportion any amount of their estate to their spouse. And then that second spouse and died on a lot nine October 2007. Because that second spouse was in was left a gift by their first spouse but by their spouse. Either through willing testes, E or otherwise you will be able to use the unreason near rate band, which means when the first pass died, say they died and say Sales in the year 2000 for example. And they left all their estate to say they surviving spouse then because they've left the whole lot or even a part of it to the surviving spouse, they have taken advantage of this past exemption, which means they haven't had to eat into their uh no rate band, which as you know in the current taxi. And it has been the case for some years now is £325,000. So putting it simply for husband leaves any share of his estate to his wife. Then when then he dies and then subsequently she dies. Uh in that situation, she hasn't dipped into uh the residents know rate band. So effectively she'll have sorry into, he's into the new rate Band in so far as the amount he's left her. So not only would she have her own £325,000 new rate band available to used to say if she's left any gifts to her Children, but also she'll be able to use her deceased spouse husbands unusual rate band by virtue of the fact that he left that share to his wife now dislikes. I only applies in the case of spouses and civil partners. So if for example, you've got to say cohabiting couples. So the man leaves the share to his cohabiting partner who is not a stable partner who he is not married to, she won't be able to take advantage of this. Okay, so we'll see how this ties in later with the residents know rate band. Now there are other exemptions as well. There's the charity exemption for example, so again during lifetime or upon death, if you were to leave any share of your state to charity, then you got charity exemption. So that share that amount that's left will not need to be then added to the value of the to the uh the size of the disease estate for calculating inheritance tax. Then there's various forms of relief. So many of you will be familiar with BP our business property relief and ap agricultural property relief. And just briefly um this would be where B. P. R. For example is whereby if you've got business assets for example say you're uh you're a sole trader for example, you've got a particular business assets that you've required. Say in the form of Sayer and office computer for example that you have required for the purpose of business as long as you have been acquired that and had it for a period of two years or more and then you were to die. Then the value of that computer could then be absorbed into BP are so relief could be provided. So that amount either a percentage of a full amount would not need to be added to the calculation of that person's total value of their estate. Now it does depend on how that business property was held. So for example where they are sold trader with their partner in a partnership or with a Director maybe as part of a limited company. When it comes to limited companies, for example, it depends on whether that company was quoted or unquoted under stock exchange for example, in terms of the amount of relief, whether it's 50% to 100% that is going to be provided. Similarly ap agriculture property release. So if a person has got there for agricultural property which is widely defined uh they can get relief from that, there's a seven year old. Many of you will know as to how long they were only occupied it for that period of time. It's not get, it's a very useful form of relief that people will be utilizing. There are then other forms of uh exemptions and particularly relief. So during ones lifetime, for example, you've got various lifetime transfers, such as as I mentioned, if you leave any gifts to a spouse or civil partner and a charity, then you've got the uh the uh the full exemption there, even if that was then transferred during the lifetime. There's also, for example, the annual exemption. So during your lifetime, if you were to give away in Any one tax year, an amount that does not exceed £3,000, then that exemption is available. And if you haven't used that exemption in one particular tax yet and it's possible to carry forward, But only on one one occasion doing next tax year. Any unused, but you can only do that on the under one occasion. There's also a small gift exemptions or any gift to any person that writing anyone taxi and vaccine in £250,000 exempt. If you go beyond that, then the whole gift will be chargeable something, then that's another exemption that's available and then there's others such as normal expenditure out of income. So it's made out expenditure out of a person's income uh would then be exempt from that as well. And the other main one is give some consideration of marriage or civil partnership. So if you've got say the father who gives say his daughter amount of say money of say £4,000, for example on occasion of her getting married to enter into a civil partnership, then that is also a an exemption. And therefore that amount wouldn't have to be added to his estate for purpose of inheritance tax purposes. As long as it doesn't exceed £5,000, if it's beyond that than any excess will particular account. If it's a gift to a remote ancestor to maximus 2.5 £1000. And in any other case it's £1000. Okay so you got that exemption as well. And then we've also got a lifetime transfers. Many of you know about pets. The potentially exempt transfer. So if for example a mother was to give her son uh say on graduating for example of sum of money uh as a gift. And she was tend to die there after them. That gift that she's made to her son is what's called a pet. It's a potential exempt transfer, which means a percentage of it may or may not be chargeable and it depends on really the year of her death. So if she was to make that gift today. Uh And it will be treated as not as exempt as long as she then survives uh seven years or more from when she made that gift. But if she has to die within seven years of angry having made that gift and a percentage of it is going to be taken to account depending on the year that she actually died, sort of longer she survived. So she survived. So six years, for example, after she made that gift, then only 20 percent of it, for example will be chargeable. So there is a percentage depending on how long she survives after she made the gift. And there are some transfers which are immediately chargeable. Okay. And therefore not examined and they will not amount to a pet, but they will be chargeable such as for example payments into a trust in your lifetime. So it always will be will be immediately chargeable. Okay, now how does this to an all time with the residents know right band well when any project practitioner and is advising clients on inheritance tax planning, but of course not only will you then be going through the various exemptions and release that available, both during the lifetime and also upon death particularly espouse particularly the charity exemption for example, and the use of pets potential exempt transfers. In addition to that. Uh there will be the residents know rate band. Now we all have a news uh no Rate band of £325,000. And that's been the case for many years since certainly April 2009. And that hasn't gone up for that period of time. So if I was to pass away for example, everything else being equal, then the first exemption that my family would be entitled to is the fact that whatever my gross estate is minus my debts and liabilities. What's left if taking into account that lets have made no transfers, there's no exemptions, no release at all. Um If my estate is worth Less than £325,000, then it'll be non chargeable in terms of inheritance tax. But if it's more than that then the 1st £325,000 exempt. And anything above that is going to be potentially chargeable at 40%. But of course that's where the family would then be looking at all the other various exemptions and release that would be available. So for example, ever made lifetime gift to my spouse, for example, or upon my death of our leaf left anything to my spouse. What about charity? What about BP? Are? What about a P. R. What about gives the Children? What about pets and so forth? So that's where these release come in. And the other key relief that the family would rely upon is this this one that came in On six April 2017. The residents new rate band. So at that time rather than the government deciding and parliament deciding to increase the new rate band because that would have been the other way to do it to maybe increase the annual rate band Before 2009. We used to increase that every year By about 10 to £15,000 in line with the cost of living inflation. Uh And and really the change in the value of money, but for many many years that's not been the case. So rather than increasing the uh no rate band, which perhaps would have been an easier way to do this, uh The view rather by parliament was to in fact bring in this new relief. None of the residents new rate band instead. And if one uses this then what happens it will then potentially result in the value of your clients charge of what estate being reduced, which means that when you do then apply the new rate band potentially to be on a lower amount, which means potentially there will be less or perhaps even in some cases no tax to pay at all. Mhm. One of the other things to remind is this, as I mentioned with the new rate band, you can use your disease spouses or deceased silver partners on using your rate band. So if for example, the husband died in the year 2000, he left everything to his wife. She died on her after nine October 2007 and left everything to the Children. Not only will she have her own New wave band of 3-5, but she can also use her deceased husband's on news release. So in fact, there's a total amount of £650,000 there as a uh, no rate band before any tax becomes chargeable. So you can do that between spouses and civil partners. But where do we stand in with the residents and the rate band? So for example, you've got a wife who died in say May 2017. So therefore a month after this relief came into effect. But her husband Died say five years previously. Is it possible for her to use her deceased husband's unused resident near rate band? Well, you may think That it's not possible because the law had only come in as six April 2017. But in fact it is possible. So even though the residents Know right? Bandit not coming until 6th April 2017 for deaths of spouses and civil partners before that date. Um, and then subsequently for somebody who then dies on or after 6-8 2017, you can rely upon the first deaths on used new right residents new wave band, even though it didn't even exist, even though it didn't exist at that time. So Putting it simply what it means is this if, say an example of just giving you the wife died in May 20 17. So she would have died in that tax year, which means her family have got the residence near rape and potentially at that stage the first, which was £100,000. So that would be the relief. But let's say her husband died five years previously, of course he won't have used the resinous new wave band because they exist but he is deemed To have unused it and therefore she can rely upon not just her own exemption of £100,000. Given us a taxi as she died But also had deceased husband's unused residents know a band of another £100,000. So you accumulated to, which means whatever her estate is, you will be able to reduce that by that amount and therefore potentially that will assist her family with reducing and possibly even eliminating any inheritance tax that may be possible. Okay, so that's the one thing to certainly bear in mind which I'm sure you'll agree is a very positive. Okay, now, how do you actually go about then actually claiming the residence? You're right band? Well, the details they would need to be set out on the in the supporting information on the inheritance tax form and you need to be able to then ensure that if you are using any unused new rate band sort of unused residents, New wave band. Remember even for deaths Prior to 6th grade for 2017, you need to be able to ensure that you claim any unused residents now banned from the estate of the late spouse or late civil partner. Okay and also you need to ensure that you Are claiming any additional residence innovate. And as a result of downsizing as from that date in July 2015 or disposal of the home before the death. Or again it's very important to be able to claim that if indeed you are and to do this if you are claiming use of um using a white band from the death of a previous spouse or civil partner or the as a result of downsizing or disposal love then it's the personal representatives of the surviving spouse or surviving civil partner who's who must then make a claim to do just that to transfer the unused residents new wave band. And I Need to ensure that to do this within two years of the end of the month in which the surviving spouse or surviving civil partner died. Although you can apply to extend this in some cases you would need to explain and justify to uh H. M. C. T. S. Y. Sorry. Hmrc. As to why one did not apply during that time. And you need to explain why the reason is right okay. Now a couple of other things to be reminded so far as when you cannot use the residents in your right hand, you can't use it on lifetime gifts for example. So if a person dies and leaves the house but it left the house on as a lifetime then you cannot use it in that way. So it doesn't apply to any gifts made during that person's lifetime. So very important to bear that in mind. Okay so you can only use it when the person dies and leaves the estate not doing a lifetime in that regard. So if the husband was to say leave the house to his wife uh can't be used at that stage of course. So even though one cannot use the existing presents, the right bank to any lifetime transfers And it gets made within seven years of the donor's death. The residence right and cannot be used in that way. Okay so it's important to bear that in mind. Right. Okay. So what's the position with the type of home that has been left to direct descendant? Because remember to be able to use the residence No wait band. Therefore upon death it must have been inherited by the direct descendants. In in most cases although it's possible to use a deal of variation and come onto shortly. And what we've got to ask yourself is what is the position with the type of home And the home that's left to direct descendants doesn't have to be the home. The same home that the couple lived in with their late spouse or civil partners To be able to qualify for the residents. No great band or to even transfer. So it doesn't have to be the same home that the couple lived in with their late spouse or late super partner could have been a different property. And all sort of surviving spouse or surviving civil partner doesn't have to have had previously on the home with their late spouse or civil partner inherited it from them. Okay, So you can have a situation therefore whereby husbands died, uh wife has got the property that she's lived in her home. Um She didn't own it with her husband, It was a nurse, whole name for example and she's now died and she died intestate and it goes to her Children. So they are the direct descendants and named Herod. But she didn't own it with her late husband and she didn't need to, she may she wouldn't even have had to necessarily live in the home with her late husband. But as long as it was a home that she lived in at some stage, that's the key thing that you're looking at insofar as that's concerned. Okay. And one of the other difficulty, One of the other questions we need to ask is what if the deceased on more than one home at the point of death. So as you can imagine some of your clients may have several properties, Well you can't use it on order properties. You can only use the residents now rate band in relation to the one house to one home. And what the personal representatives Then we'll be able to do is to be able to nominate as to which one should qualify for the purposes of the residents near a band. So it is possible to do that. All right. And also what's the value of the home that's taken to account for the purpose of the residents know rate band? Well, the value is going to be the open market value of the property minus any liabilities secured on it, such as a mortgage. So whatever the values, the open market value, you look at that, you take away the charges, the mortgage on the property and what's left is the actual value of the property. And it doesn't need to be worth any particular minimum value or maximum value for that matter. Okay, now, what if the home is not in the UK? Because you can imagine that may well be the case. Now, that's not necessarily going to be a problem. So a person who is domiciled in the UK will be subject to inheritance tax on their worldwide assets. So many of you know, that if somebody dies here in England and Wales, for example, domiciled in the UK, then you're looking at Their assets that they had worldwide to see which inheritance tax form is complete. Whether it's the two or five, whether it's the 400. So it depends on whether the status accepted or not. So you're looking at foreign property, You're looking at other factors to see whether it's accepted when it comes to the residents, new rate band. It doesn't matter whether the home that their direct descendants have inherited is either located here in the UK or overseas. As long as it was a home which was included in the estate, that's what matters irrespective of where in the world it was located. Okay, so again, that's quite useful to bear in mind. Now wonder key aspects I want to discuss with you is, what do you actually mean by direct descendants? Because as you'll appreciate this is going to be one of the key aspects when you're looking at being able to see whether or not this is even available or not for the family. Now you can see this is a very lengthy, uh, comprehensive definition in terms of who comes within the definition of direct descendants. So includes of course a child of the disease, the grandchild of the disease or other linear descendant of the person who has died. It will also include a spouse or civil partner of the linear descendant, including their widow. We're all surviving civil partners. So for example, it will include, say the son of the father who's died and would also include his spouse or civil partner, for example, And even surviving, uh, without in no circumstances surviving civil partner, for example, it also includes any child who is or was it any kind of person? Step child. Okay, but only where the parent is always the spouse or civil partner of the deceased. Okay. So this could be the situation where the step father dies, for example. And uh, the house is inherited by his steps in, for example. So you've got that they're also any child that was adopted. Okay. So if the child was adopted by his adopted mother for example, and she dies in the house goes to the adopted son or daughter and of course they would also benefit. And also interesting the child who was fostered at any time by that person. So you can see this has actually opened up the opportunity for Children who are being fostered by their foster parents to also benefit in that regard, which is really significant in my view because certainly as a practitioner, I often find that Children who are fostered because ordinarily when it comes to parental responsibility that we continue to be shared between a local authority in a child's birth family and birth parents in most cases and not the foster carer here because the foster carer is uh still of course looking after a child bringing up the child and providing that, that that's that security for the child here. Uh, if the foster care was to pass away and left the left the property to the child, they would also be able to take advantage of the residents, New wave band and then some of you who are family practitioners will know that Since December 2005 who had the provision of special guardianship. So that if, for example, you've got a situation where, say you've got uh The 15 year old child who is living with his grandmother. And she's got the benefit of a special gunship order, which basically gives her a form of elevated, enhanced parental responsibility. Where she's able to carry out more steps on behalf of the child herself. Uh there are certain limitations, but many steps in relation to exercising parental responsibility. She will be able to do herself then if she was to uh make a will or have a house, which ultimately then is goes to her special the child actually is a special guardian of that child will also be able to take advantage of the residents decorate, banned on the basis that that child is also classed as a direct descendant. And this also applies if the grandmother was in fact appointed as a guardian, maybe in the will for the child, and then she was to pass away and she had left the house to the person that she is the guardian of. So it applies there as well. So, you can see it's a very lengthy and comprehensive and quite rightly, a very significant definition uh in that regard. So, the child who inherits the home for a deceased doesn't need to be Under 18 themselves, wondering how it's of course, when I use the word child here, could be an adult child Or somebody beyond over 18 would still be able to benefit in this regard. So therefore you can see that who doesn't come within the definition of linear descendants would be, for example nephews or nieces. So if the house was left a nephew or niece or the siblings of the disease, for example, in any other relatives who don't come within the definition of what you just mentioned. So they would not come within that definition. Now for the direct descendant to in fact benefit there must have inherited a whole more share of it. Okay, So if the home is left to beneficiaries who make up both direct descendants and also other relatives, then only the value of the home which the direct descendants inherit will be taken to account for the purposes of the residents. Know rate band. So that's where you have to calculate what amount is going to them. And it's only that amount in terms of the value which could then be taken to account with a view to then reducing the total value of the estate. For purposes of calculating uh the inheritance tax liability. Now, how does the direct descendant the need to inherit the home And to be able to use the residents near rate band, the person can inherit her home. If it's left them under a will, for example or through in testis e okay so for example, if the father was to die, he hasn't made a will. Uh He's survived by say his Children is wife had passed away previously let's say so he is survived by his three Children who dies intestate, in which case all of his estate were then under section 46 of the administration of Estates Act of 19 25 will automatically goes to these three Children. So they've inherited two in testis e. And if they inherit then between themselves his house or part of it, then they will be able to utilize the residents near rate band. Or if they were to inherit through some other legal means as a result of their father's death through survivorship, for example, which could be possible as well. But what if he's well what if the father who died if he did make a will? Uh And he didn't specifically mention a home? That wouldn't be a problem because the home doesn't have to be directly mentioning his way. Or it can be inherited as part of the residue of the estate. So for example if he's left certain specific gifts to certain people on certain general gifts and he's left arrest the residue to his Children, even though he doesn't specifically refer to the house in there because the residue on the facts does encompass his house, then they haven't inherited in that basis and they once again we'll be able to take advantage of it in that regard? Okay, now what if the only reason the descendants got the homeless through a deed of variation, they can still use it in that situation? So the descendants can also inherit the home if it's left him as a result of amending the disease will buy a deed of variation. So that could be, well let's say through the will the house was left to the father's brother for example and the father decides to not accept the gift of the house and instead does the deed of variation varying. Uh So as to then transfer that to the Children so they can then the father's Children. And so therefore it could be used in that way as well. Now as I mentioned earlier, there's a concept of tapering. So the residents, no great band is particularly helpful for persons where they have inherited the house. And as I've been saying, but there is a limit to this because the state must ordinarily be worth mourning for £2 million. Do we have to use this? Having said that if the estate in total is worth more than that, the north of the residents know a band is available, it's gradually tapered away. If the estate is worth more than £2 million, even if the home was left to direct descendants. And what happens is if the estate is worth more than two million, it's Reduced by £1 for every £2 That the value of the estate is more than two million paper protect taper threshold. So you can see the the thinking behind that And I can appreciate some people who will have estates worth more than two million. You can you can imagine why understandably, some of them may be quite agreed about this, but that's the that's the goal that has been brought in. And how do you then calculate the value of the estate? So this essentially they would be the total of the assets in the estate minus any debts or liabilities. So what you would be doing then is adding up all the estates taken away, of course debts and liabilities uh that would then give you the amount and then you wouldn't at this stage deduct other exemptions, spouse or civil partnership exemption and release such as BP are what you would do here than his add up the total value of the estate, Uh takeaway debts and liabilities and that will then enable you to see whether you have hit two million threshold or otherwise. So just summarize in this and you can see that the residents new abandon has been in play For some time now, certainly since six April 20 17. So here we Are looking at this in August 2021. So we've got a maximum threshold which is 175. So just putting it together, just to give you a little example, if say you've got a situation where so you've got a husband and wife who are married and they've got two Children, for example and say the wife was to die this year. Uh and she's left her total estate to say her husband. So therefore she's left her total estate. Her husband's of course he will be up to utilize the four spouse examination. So therefore the wife effectively hasn't used her uh with no eight band. Uh Then that's one thing. So even though she may have made other exemptions and uh maybe other release the fact that she's left the entire estate to her husband. So he will be able to utilize fully the spouse exemption. So therefore when he inherits his wife's estate, irrespective of its value, irrespective of his mount because you will be able to use upon her death, the fact she left everything to her husband, the spouse exemption, there will be no inheritance tax payer. Now let's say the husband then was to die next year. All right. So wife has died this year, husband has inherited her share and he's got his own husband was to die next year and He's left his entire estate to say to the two Children. Okay, now, in that situation, In terms of the Children and in terms of inheritance tax for from from the point of view of their deceased father, they would ordinarily have had their father's name of a band of £325,000, but because the husband had inherited his wife's a total estate. Uh and she definitely didn't leave her state to anybody else, then there is that unused your rate bands. So in fact The Children won't just be limited 3-5, they'll be able To add on their moms unused release. So in fact it's £650,000 so far. So he'll be able to use that now on top of that because we've got the residence new rate band. Let's say the father left the entire estate to his Children which encompasses the house that he lived in with where they may have lived with his wife. Otherwise boats a house that he had he owned. He leaves to his Children in the willow and testes. He otherwise. So of course they will be able to use the residents to rape. And let's say the total value of the estate is less than £2 million. So because he's died next year, the total Relief. And of course even from next taxi up until 2020 six will be 1 7 five for that tax year. So therefore his Children can use that 175 residents. No great band relief from from that of their disease father. And also uh they will be able to claim the unused residents. No brake band uh from their disease. Mother who died this year. Let's say. So that again would be the year of her death which is 175. So in fact Putting those two together. You've got the 3-5 times two. And then you've got to 17 five times to now you add those two together and that brings you to a total figure of a million pounds or 6:50 plus uh the other uh 3.50. So in total You've got £1 million. So basically for those Children to be required to pay any inheritance tax on their deceased father's estate, they've got a total exemption first start off with a million pounds and it's only an amount beyond that that potentially will be taxable for purpose of inheritance tax. So hopefully you can see how the residents know a band works and you can see it is a very useful relief. I fully appreciate that there are a number of obstacles that people need to go through, which I've explained in terms of who is a direct descendant and what manner do inherit? What's the position if it's a lifetime gift? What if the property is overseas? The amount the two million pounds limit, the tapering, the downsizing. So I appreciate there's a lot of conditions there. But actually for many clients who do utilize this, you can see it's a very useful relief. Again, some people take the view that perhaps it would have been better to increase the your IT band. But then that's a dis a view that the parliament decided to go down the route of and therefore it's very, very important and part of the the overall tax planning that this is a relief that you discuss with your clients and make sure that they are aware of it. And of course, if it is something that's clay mobile that it is so duly claimed, thank you very much indeed for listening. I hope that's been a useful session for you. Thank you very much. And I'll speak to you next time. Thank you. Bye for now.