In his recent article “Ensuring where possible the NRB is available to minimise IHT”, Tax Manager Chris Bradley discussed the Nil Rate Band (‘NRB’) and a few key points to be aware of. In his latest article, Chris outlines some of the key points in relation to additional Inheritance Tax (‘IHT’) relief available in the form of the Residence Nil Rate Band (‘RNRB’) which came into effect for deaths occurring on or after 6 April 2017.
What is the Residence Nil Rate Band?
The RNRB is an extension to the NRB meaning that the band in which no IHT is chargeable, is extended. The maximum RNRB is currently £175,000 and is frozen until 2025/26.
When combined with the NRB an individual can potentially shelter up to £500,000 (£1m for married couples/civil partnerships) of assets from IHT on death.
The RNRB is available when:
- a person dies on or after 6 April 2017;
- the person owns a home (or share of a home) so that it is included in his or her estate; and
- his or her direct descendants (i.e. child, grandchild, step-child, adopted child or foster child) inherit the home or a share in it.
Only one property can qualify for the RNRB and if an individual has more than one, the Estates Personal Representatives (“PRs”) can nominate which property is to benefit from the RNRB.
If the Estate’s PRs sell the home instead of passing it to the direct descendants, the RNRB should still be available provided the Will states that the property is to be left to direct descendants.
There may also be an entitlement to the RNRB if an individual has downsized to a less valuable home or sold or given away his or her home on or after 8 July 2015 (the ‘downsizing addition’). This is a complex area so specific advice should be sought if you consider the downsizing provisions may apply.
A key point to note is that the RNRB is tapered by £1 for every £2 that an individual’s estate exceeds £2m (before taking account of IHT reliefs and exemptions e.g. Business Property Relief or Agricultural Property relief). Therefore, the RNRB would be lost where an estate’s value exceeds £2.35m. It is therefore imperative that individual’s review the value of their estates periodically and seek professional advice if they believe they might be affected by RNRB tapering.
Can I transfer some or all of my RNRB?
Under normal circumstances it is not possible to transfer the RNRB to another person – whether used or not. However, as with the NRB, for married couples and members of a civil partnership, it is possible for the unused proportion of the RNRB of the first spouse or civil partner to be transferred the surviving spouse. This means that any part of the RNRB that is not used on the death of the first spouse or civil partner can be transferred to the surviving spouse or civil partner for use on the later death. It is necessary to make a claim for any unused RNRB to be transferred to the surviving spouse and it is therefore imperative that this valuable relief is not overlooked.
Key takeaways?
- Ensure that Wills are drafted so that a person’s home is inherited by direct descendants
- Review the value of your estate periodically to check if RNRB tapering may apply and if so, take proactive steps to minimise tapering, if possible.
To discuss your own situation or to find out more contact: Chris Bradley, Tax Manager E: chrisbradley@bakertillymm.co.uk or Angela Keery, Tax Director E: angelakeery@bakertillymm.co.uk or T: 028 9032 3466