The Residence Nil Rate Band – Inheritance Tax

Are you aware of the Residence Nil Rate Band of Inheritance Tax that you can take advantage of when making your will?  Apart from the standard Nil Rate Band (currently £325,000) the Residence Nil Rate Band (RNRB) was introduced on 6 April 2017. This is available when residential property is left to direct descendants and there are various factors to be taken into account to enable you to benefit from this allowance.  The aim of the RNRB is to make it easier for individuals to pass on the family home and minimising on potential inheritance tax liabilities on death.

Who is the RNRB for?

The Residence Nil Rate Band is available to individuals with direct descendants who have an estate (including a main residence) that is worth more than the inheritance tax threshold (known as nil-rate band) which is currently £325,000 for 2018/19.

How does it work?

You may qualify for RNRB if you are leaving your home (that you own or part-own) to children or grandchildren (including adopted, foster and step-children) and any more remote descendants and their spouses or civil partners, including their widow(er) or surviving civil partner who has not remarried or entered into a new civil partnership.  (Please note that this does not include nephews, nieces, siblings and other relatives who are not listed above.)  Effectively, you gain an extra threshold in addition to the nil rate band before IHT becomes due on your estate resulting in a further:

  • £125,000 in 2018/19
  • £150,000 in 2019/20
  • £175,000 in 2020/21

following which the amount will increase in line with the Consumer Price Index.

What if I have downsized or moved into care?

In order to qualify for the RNRB, the family home does not need to be owned at death. This is useful if you have downsized or sold your property to move into a relative’s home or residential care.  The RNRB will still be available as long as:

  • the property would have qualified for the additional threshold had you retained it
  • the replacement property and/or assets form part of your estate and pass to descendants

What happens if I own more than one property?

The RNRB is restricted to just one residential property.  It will be up to the personal representatives named in your Will to nominate which property qualifies because it must have been the residence of the deceased and therefore a buy-to-let property cannot be nominated.

What about if my partner died before April 2017?  Is the RNRB transferable?

As with the standard Nil Rate Band, any unused part of the RNRB can be transferred between spouses and civil partners.  The unused part of the RNRB from the estate on the first death automatically transfers to the remaining spouse or civil partner and can then be claimed on the second death.

What is meant by ‘tapering’?

If your estate is worth more than £2million, the RNRB is reduced by £1 for every £2 that the value of the estate exceeds the threshold.

Supposing the family home passes into trust?

In this scenario, you risk losing the RNRB if the property is placed into a discretionary trust even if the beneficiaries are limited to direct descendants.  However, there are certain types of Will Trusts which are acceptable.

Where do I go from here?

In this article we have set out points for consideration.  However, this is a complex area and if you are making or revising a Will then it is advisable to seek professional advice.  Please telephone 020 7723 3040 and speak to Saida Siddiqui, our expert on private client related matters, who can advise you further.