The IHT436 is a form like many other documents that are used throughout the UK legal system by individuals. While the main aim of this article is to explain how and when a form IHT436 is used, we will also consider other key aspects related to one’s inheritance and how individuals may choose to protect it. 

When Can I Claim IHT436?

Form IHT436 is used to claim to transfer any unused nil rate band (RNRB) against the Inheritance Tax of the estate of someone who has passed away.

The IHT436 can only be used in conditions where:

  • The spouse or civil partner of the deceased died before them
  • Death of the spouse or civil partner took place before 6 April 2017
  • If the death of the spouse or civil partner took place on or after 6 April 2017 without having used all of the RNRB available to them

Additionally, you will also need to fill out the IHT435 form. RNRB can also be applied in cases where the deceased either downsized to a less valuable residence, sold or gave away a residence on or after 8 July 2015.

The law that applies in his case is that if someone dies and their estate is valued at more than the basic Inehrtience Tax, the estate can qualify for a nil rate tax band on Inheritance Tax due on it.

In order to calculate the nil rate tax band on an estate, you will need the following:

  • an IHT400 account form with details of the estate and its value
  • an IHT435 form 
  • a completed IHT436 form; in case you are transferring unused additional threshold 

Unlike basic Inheritance Tax, the RNRB does not apply to gifts and lifetime transfers such as transfers to trusts.

The reason why transferable NRBs exist is due to the fact that when one party to marriage or partnership dies, leaving behind an estate or property which is due to Inheritance Tax and the surviving partner does not use all of the NRB that is available to them. Therefore, the unused proportion of the NRB can be transferred to them.

What Is Inheritance Tax?

Inheritance Tax is a tax that is levied on the estate of someone who has passed away and left behind property, money and possessions that need to be “managed” in an appropriate manner so that (a) if there is a will made by the deceased, the instructions are followed or (b) in the case that there is no will of the deceased, the estate is appropriately handed over to the legal heirs.  

The standard rate of Inheritance Tax is 40 per cent on an estate valued at or more than £325,000.

However, there is no inheritance tax levied on an estate that is valued below £ 325,000; however, you may still be required to report the property to HMRC. Similarly, if valuables above the £325,000 threshold are left behind in the name of one’s partner or spouse, a charity or a community club, there will be no inheritance tax levied. 

If the same property is left behind for children, the threshold will increase to £500,000. Inheritance tax is charged at the rate of 40 per cent on amounts in excess of the threshold.

What Are Discretionary Succession Rights?

Discretionary succession rights are the rights to succession of someone who may not fulfil the desired criteria under statuary succession for council tenancy. These are rights to being passed down a council house, at the discretion and decision of council authorities once claimants place their application to continue living in a council property after the death of the tenant in whose name the council tenancy agreement was originally made.

To claim discretionary succession rights under secure tenancy, the claimant must fulfil either of the following conditions:

  • Be a spouse or partner of the deceased council tenant, have lived at their council property as their main residence and should have been living with the deceased at the time of their death; or
  • Be the deceased’s parent, grandparent, adult child, grandchild or sibling, have lived with them for a minimum period of five years, in their council house as the main residence of the claimant. 

Can I Keep My Council House If I Inherit A House?

There are chances that you may not be able to keep your council house if you inherit a property. The reason for this is that the eligibility criteria for council housing include a means test. Therefore, individuals facing financial hardship qualify for council housing while those who may be financially stable enough to own a private property may not.

There have been instances in which individuals have deliberately concealed their private property or inheritance from council authorities in order to maintain council housing residency as well as state benefits that they were claiming. However, once councils find out about intentional attempts to hide factual details about one’s financial (or even personal/circumstantial) situations, tenants may bay be evicted from council housing property or even fined a hefty amount.

How Can I Protect My Inheritance From Nursing Home Fee?

One of the most common ways that people adopt to protect their inheritance from paying nursing home fees is through asset protection trusts. Although nursing home contributions by those eligible for such care is means-tested, there are many claimants who choose to reduce their assets prior to being transferred to a nursing home to avoid them being sold or used for care home fees payment.

However, some people believe that if they are aware of deteriorating health conditions, the best way to proceed with their healthcare needs is to first make sure that their assets are not being used to pay for benefits. At other times, it may happen coincidentally that an elderly individual decided to put their inheritance in an asset protection trust even though they may be in good health but would like to make arrangements for unforeseen circumstances.

If someone decides to proceed further, they have the below options to choose an asset protection trust from:

  • Protective Property Trust: This applies in the case of joint ownership of property. When one partner dies, their share of the property transfers to the trust and if the other partner moves into care, only their own share will count for the means test and not that of their deceased partner. 
  • Life Interest Trust: In this case, the trust covers the entire property and estate of the person claiming the trust. Based on their will, their property and estate will be passed down to beneficiaries.
  • Interest in Possession Trust: This is similar to the Life Interest Trust; however, under interest in possession, beneficiaries can start claiming income from the time of the trust being enforced.

What Counts As Deprivation Of Assets?

When someone deliberately reduces their assets to avoid having to pay for care home fees and relying on the state to bear most (or all) of their care home expenditure, it is considered as “Deprivation of Assets”.

While most individuals consider that transfer of savings, selling of one’s property or gifting their home to a family member is all that counts as deprivation of assets, that is not all. Any of the following actions will be counted as deprivation of assets if it takes place within a short period of time prior to one’s claim for care home residency:

  • To give away a large sum of money
  • To transfer the title deed of one’s property
  • To spend a large amount of money which is in contrast with the spender’s usual spending pattern
  • To lose money through gambling 
  • To use savings in order to purchase items excluded from a means-test such as a car or jewellery

What Does Not Count As Deprivation Of Assets?

The 7-year rule that nullifies one from inheritance tax does not apply in case of deprivation of assets; enabling councils to consider financial trends as far back as they would like to.

However, according to the Guidance manual on assessment of capital, if the claimant has sold or transferred assets with the intention to:

  • reduce or return the debt that they owe (either to an individual, bank or the state),
  • make credit cards payments,
  • pay for their mortgage,
  • make payments for day to day expenses,
  • improve their quality of life (for e.g by purchasing a new car or rebuilding a kitchen),
  • improve their quality of health through medical expenses, or
  • go on a holiday

it will not be considered as deprivation of assets.

Conclusion:

The form IHT436 may prove to be essential while someone makes claim to transfer any unused nil rate band (RNRB) against the Inheritance Tax of the estate of a spouse or partner who has passed away. However, when it comes to inheritance, one may need to be careful in making decisions regarding its protection from being used for old age care; while making sure that any asset reduction or gifts to relatives does not appear as deliberate deprivation of assets.

FAQs: When Can I Claim IHT436?

When can you claim nil rate band residence?

The RNRB is only applicable in cases where the residence is left to either one or more direct descendants. This includes children, adopted, children, stepchildren, grandchildren and even great-grandchildren.

Who can claim the residential nil rate band?

The nil rate band can be claimed by a child or grandchild who has been given an absolute interest or interest in possession in the home by the estate trust.

Is there a time limit to claim RNRB?

Yes, there is a time limit to claim RNRB. Therefore, any RNRB must be claimed by the direct descendants of the deceased within a period of two years from the end of the month in which the death of the deceased occurred. 

What is form IHT436?

Form IHT436 is used to claim to transfer any unused nil rate band (RNRB) against the Inheritance Tax of the estate of someone who has passed away. It can only be used in conditions where the spouse or civil partner of the deceased died before them, the death of the spouse or civil partner took place before 6 April 2017 or if the death of the spouse or civil partner took place on or after 6 April 2017 without having used all of the RNRB available to them.

What is the residence nil rate band for 2021-22?

The residence nil rate band threshold for 2021-22 is £325,000. For estates and properties above this amount, a 40 per cent addition is applied.

References:

Claim transferable residence nil rate band (IHT436) – GOV.UK

How To Claim The Residence Nil Rate Band – Tax Insider

Claim to transfer any unused residence nil rate band

If I am claiming RNRB and transferable RNRB do I have to complete an IHT400? | Practical Law

Will Inheritance Affect My Council Tenancy?

Should you avoid care fees by putting your home into a trust?

Deprivation of assets | Social care means tests

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