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Inheritance tax Residence Nil Rate Band – do you qualify?

by Gina Mills

Hailed as the most significant change to Inheritance Tax in over a decade, the Residence Nil Rate Band (RNRB) was originally introduced from 6 April 2017.

To provide some background, the current amount that you are allowed to leave in your estate without incurring inheritance tax (IHT) is £325,000 – or a combined £650,000 for married couples or civil partners – which is known as the nil rate band (NRB). 40% tax is then usually incurred on anything above this figure.

What is RNRB?

When it was first introduced in 2017, RNRB added a further allowance of £100,000 to the NRB.  This increased to £125,000 (£250,000 combined) from 6 April 2018, before reaching its maximum of £175,000 (£350,000 combined) from April 2020.  

Essentially, this allowance paves the way for you to pass on your family home to your children or grandchildren when you die, whilst potentially reducing your inheritance tax bill.

RNRB – some key facts

As its name suggests, the RNRB can only be used to pass on property to a lineal descendant. If you don’t have children (adopted, step or birth), the allowance does not apply. RNRB can be transferred between spouses upon death.

The property must have been occupied as a residence by the person intending to pass it on in their will. In addition, RNRB applies to one residential property only, so if you own multiple homes as part of your estate, the person in charge of your will planning will need to nominate which one should qualify for RNRB.

A further condition of RNRB is that before reliefs, such as business property relief, your total estate must amount to less than £2m. If you downsized or moved into residential care after 8 July 2015 then the allowance still applies, and the property or its equivalent value in cash can be left to lineal descendants.

It is very important to note that under RNRB you will not be able to leave your property to other family members, such as a sibling, niece or nephew or a discretionary trust and this may therefore be a good time to renew your will as part of your IHT planning.

What happens if your estate amounts to more than £2m?

Your RNRB allowance will taper; for every £2 that your estate is valued over £2m, the allowance is cut by £1.

This means that, following April 2020, the allowance will disappear if you have an estate worth over £2.35m.

Further assistance and support

Information surrounding estate planning can often seem confusing. Yet there are often valuable benefits to be gained in understanding inheritance tax rules, which is why we recommend taking professional advice.

As a starting point, if you believe you will be affected by RNRB, or you would like to ensure your family will benefit from your allowance, a review of your current will and future plans may be necessary.

At Rickard Luckin, our in-house team of tax specialists are able to provide advice and assistance that will help demystify the process. To find out more, or to arrange an appointment, contact Gina Mills or another member of our experienced team of Inheritance Tax specialists.

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If you have any questions about the above, or would like more information specific to your circumstances, please enter your email address below and we will get in touch:
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Gina Mills
Tax Manager | Southend

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