Georgia Samardzija discusses the five things you need to know in relation to the Residence Nil Rate Band.
Each individual has a basic nil rate band allowance of £325,000, which is the amount of a person’s estate chargeable to inheritance tax at the rate of 0%. This is transferable between spouses and so if, for example in his Will, a husband left the entirety of his estate to his wife, on the wife’s subsequent death, her executors could claim a nil rate band allowance of £650,000.
In addition to the basic nil rate band allowance, from 6 April 2017 an individual may be entitled to a further allowance known as the Residence Nil Rate Band (“RNRB”) which applies when a deceased leaves their home to his or her direct descendants.
Here are 5 things you need to know about the RNRB:
1. The residential nil rate band will be phased in as follows:
|Tax year||RNRB allowance|
|2017 – 2018||£100,000|
|2018 – 2019||£125,000|
|2019 – 2020||£150,000|
|2020 – 2021||£175,000|
If an individual passes their entire estate to their surviving spouse/civil partner on first death, that deceased individual’s RNRB can be carried forward for the surviving spouse/civil partner’s use. Therefore once the RNRB has been fully introduced, a married couple may have a combined nil rate band allowance of up to £1,000,000 (made up of two basic nil rate band allowances £650,000, plus two RNRB allowances £350,000).
2. Who can benefit?
The residence must be inherited by the deceased’s lineal descendants. The definition of “lineal descendants” in the context of the RNRB is rather wide as it includes:
- Children and grandchildren
- Adopted children
- Foster children
- Children for whom the deceased was a guardian
- Lineal descendants of any of the above
- A spouse or civil partner of a lineal descendant as at the deceased’s date of death
- A surviving spouse or civil partner of a lineal descendant who died before the deceased, provided the survivor has not remarried or formed another civil partnership prior to the deceased’s death
3. RNRB and trusts
The RNRB may not apply if the residence passes into certain types of trust, such as a discretionary trust on the deceased’s death. However, in such a case, simple steps can be taken within two years of the deceased’s death to claim the additional relief, thus mitigating the inheritance tax payable.
4. Will my estate qualify for the RNRB?
The residence nil rate band is tapered down by £1 for every £2 that the deceased’s net estate exceeds £2,000,000. This means that for the 17/18 year if an individual’s net estate exceeds £2,200,000, the RNRB will be unavailable.It is worth noting that Business Relief and Agricultural Relief are disregarded when calculating the value of the net estate.
5. The meaning of residence
If you own more than one property that is, or has been your residence, your executors can choose which property should benefit from the RNRB.
If you have downsized and you now own a less valuable home, provided you sold your home on or after 8 July 2015 and at least some of your estate is inherited by one of the beneficiaries mentioned above, then the relief will still be available.
Additionally, if you no longer own your home at your date of death (possibly as a result of moving into care), provided the property disposed of would have benefitted from the RNRB had it still been owned, the RNRB will still be available.