Residence Nil Rate Band

In 1789 Benjamin Franklin famously wrote that “in this world nothing can be said to be certain, except death and taxes” and this has gone on to become one of the most famous quotes in existence.

A slightly sombre outlook, but with the possibility of one last tax bill due upon our deaths, Inheritance Tax (IHT), is something most of us need to be aware of at some point and there have been major changes to the IHT regime in the current tax year. Our Tax and Financial Planning teams work together to help you identify and then reduce tax liabilities through careful planning.

The Residence Nil Rate Band (RNRB) was introduced on 6 April 2017 as part of the government’s target to give married couples and civil partners a maximum estate value of £1m by 2020 before any IHT is due on death.

All sounds fantastic right? After all who wouldn’t rather leave their estate to their loved ones rather than pay any more to the government?

Everyone is currently entitled to a Nil Rate Band (NRB) of £325,000 before any Inheritance Tax is due, and the new Residence Nil Rate Band (RNRB) has initially been introduced adding a residential property element of £100,000 to that allowance, rising by £25,000 per annum until it reaches £175,000 at the beginning of the 2020/21 tax year. Double up these allowances for a married couple and you are looking at the ability to pass on £1million, free of IHT!

However, there are a number of important caveats to an individual’s entitlement to the RNRB allowance, including the following:

The property on which the RNRB is claimed must have been lived in as the deceased residence at some point

The property must be ‘closely inherited’ which in practice means left to lineal descendants or their spouses, civil partners, widows or widowers.  Lineal descendants also includes step children, adopted children or foster children for this purpose.

Where an estate is valued in excess of £2m, £1 of RNRB is lost for every £2 over the £2m threshold.

There are also complicated downsizing provisions to preserve the RNRB in situations where a residence has been sold after 8 July 2015 in favour of a less expensive one which may not use the full RNRB.

Even from the brief outline of the RNRB above, you can see that like many pieces of tax legislation, it is generous, yet at the same time a complex piece of legislation and this is just the tip of the iceberg.

If you would like further information about the complexities of the RNRB and your entitlement to it, please contact Scrutton Bland. Our Financial Planning and Tax Departments are ideally placed to provide a joined-up approach to both assessing and dealing with your IHT liabilities.

For financial planning on Inheritance Tax please email Matt Merchant and for tax advice please email  Faye Howard . Both can be called on 01473 267000.