Since the arrival of the Residence Nil Rate Band (RNRB) in April last year, there is still a lot of misconception as to how it works and how you can benefit from it.
The RNRB is an additional allowance for inheritance tax. It applies in addition to the existing IHT Nil Rate Band (NRB), which is expected to be frozen at £325,000 until 2021. It is intended to reduce the impact of IHT for those with a family home that they wish to pass on to their children.
The additional nil-rate band for estates with a value of more than £2 million will have the additional Nil-Rate band reduced at a rate of £1 for every £2 over this threshold.
The Residence nil rate band (RNRB) will take effect for relevant transfers on death on or after 6 April 2017, and will continue to be phased in until tax year 2020/21, as follows:
This will be:
- £100,000 in 2017 to 2018
- £125,000 in 2018 to 2019
- £150,000 in 2019 to 2020
- £175,000 in 2020 to 2021
Therefore, a married couple with estates under £2m and leaving a house valued over £350,000 can expect a total IHT allowance of £1m, instead of £650,000.
It is designed for families. Each parent who owns a property, or a share of a property, that they have lived in and which is left direct to lineal descendants such as children or grandchildren, step-children, adopted children and foster children can benefit. If the client owns more than one property then they can select which property to have the allowance against but must be able to prove they have lived at that property at some time. As with the basic NRB, any unused percentage of the RNRB on the first death can be transferred to the estate of the surviving spouse or civil partner for use at their own death, regardless of when the first death occurred.
Remember that, as with the NRB, executors must be able to demonstrate what happened to the first persons RNRB, usually via the Will and subsequent estate administration after the first death. As the transferred allowance must be claimed, it is imperative to keep good financial and testamentary records of the first spouse’s estate at the time of death. [We can help with this, just ask].
It is still possible to claim the RNRB allowance even when downsizing or moving to smaller properties, or a cheaper property, or even giving up ownership completely, moving into nursing care for example. However, it will be subject to a potential adjustment between new and old property values. This ‘downsizing addition’ can be quite complex depending on many factors. Our Professional Executor Services can sort this out for you.