Still trying to understand the Residence Nil Rate Band? Here’s what you need to know….
06 February 2018
1. What is the Residence Nil Rate Band (RNRB)?
The RNRB is an additional allowance for inheritance tax. It applies in addition to the existing IHT Nil Rate Band (NRB), which is expected to be frozen at £325,000 until 2021. It’s intended to reduce further any IHT impacts for those with a family home that they wish to pass to their children.
There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.
2. Implementation phased over 4 years
The Residence nil rate band (RNRB) came into effect on 6th April last year, and will continue to be phased in until tax year 2020/21. It will be phased as follows:
a) The current allowance for the 2017/18 tax year is £100,000
b) In 2018/19 the allowance increases to £125,000
c) This rises to £150,000 in 2019/20
d) It completes in 2020/21 at an allowance of £175,000
3. Who does it apply to?
It is relevant for specifically for families and each parent who owns a property, or a share of a property, that they have lived in and which is left direct to lineal descendants such as children or grandchildren, step-children, adopted children and foster children. If the client owns more than one property then they can select which property to have the allowance against but must be able to prove they have resided there at a point in time.
4. Transfer between spouses and partners
As with the NRB, any unused percentage of the RNRB on the first death can be transferred to the estate of the surviving spouse or civil partner for use on their own death, regardless of when the first death occurred. Just to note if the first death was prior to the RNRB implementation on 6th April 2017 this transfer may still be applicable. It’s important to remember that, as with the NRB, executors must be able to demonstrate what happened to the first persons RNRB, usually via the Will and subsequent estate administration after the first death.
5. Downsizing considerations
In regards to RNRB downsizing can refer to moving to smaller properties, but also moving to a cheaper property, or even giving up ownership completely.
But clients can still claim their RNRB allowance, but an adjustment will be made based on the value of the property that was sold and the new one. This is known as the ‘downsizing addition’. This element can take a more complex route depending on a number of circumstances and our Professional Executor Services would be strongly recommended if this is likely to be relevant.
Many clients are still unaware of the RNRB, or know very little about how it can potentially benefit their families in the future. When looking at the future of their assets and Estate this is an important aspect for consideration and something that clients will no doubt need advice on.
Contact BTWC about how our Estate Planning and IHT services can help you ensure your client makes secure decisions for the future and has clarity over what they need to do – call 01522 500823.
