Residence Nil Rate Band

Author: Joanna Pashley

Did you know that from April 2017 an additional allowance for inheritance tax came into force which could save your estate up to a further £350,000 by April 2020? This has the potential to take a married couple’s total tax allowance to £1 million.

This new allowance, know as the Residence Nil Rate Band (RNRB), is being phased in from April 2017 and will start at £100,000, increasing each year by £25,000 until 2020 when is will stand at £175,000 per person.

In addition, for married couples and civil partners, any RNRB not used on the first death can potentially be transferred over to the survivor’s estate. Meaning that when this is combined with the basic inheritance tax allowance for a couple of £650,000 (£325,000 for an individual) from 2020 there is a possibility for families to avoid paying inheritance tax on the first £1 million of an estate’s value.

However, to be eligible to claim the RNRB certain criteria must be met.

Firstly, the person who has died must have either owned their own home, or share in it, having lived in the property at some stage during their life.

Provisions have been made to take into account that the deceased may have either downsized or ceased to own property prior to their death. However, to qualify the disposal or downsizing must have taken place on or after 8 July 2015. Additionally, the property would need to have qualified for the RNRB if it had been kept and at least some of the estate must now be passing to the deceased’s direct descendants. The calculations to work out the amount of additional allowance can be complex and it is important that details of any downsizing or disposal are kept.

Secondly, the property or the deceased’s share in it must ultimately be left to the deceased’s direct descendants, such as children or grandchildren etc.

It is important to note however that even if a deceased’s estate meets the relevant criteria above, the RNRB can be lost in a number of ways. For instance, if the property has been left to some forms of trusts, including conditions that grandchildren can only inherit on reaching a certain age.

Estates with a net value that is in excess of £2 million will also lose out, with the RNRB being reduced by £1 for every £2 that it exceeds £2 million.

Given the complexity of the rules surrounding the new RNRB, it is more important than ever to review your Will and obtain specialist professional advice about how to make the most of your available allowances.

For further advice or assistance regarding your Will or in dealing with an estate which might benefit from the RNRB, please contact a member of our Private Client team.