Residence Nil Rate Band RNRB
The RNRB came into force on 6th April 2017 and provides people with an additional Inheritance Tax Allowance to their current personal Nil Rate Band Allowance of £325,000. The RNRB is conditional on an individual passing their main residence to their direct descendants (e.g. children, foster children, step-children and grandchildren).
By 2020/2021 families could escape paying IHT on up to £1M of their wealth. Each parent will have a nil-rate band of £325,000 plus a RNRB of up to £175,000.
How much will it be?
The RNRB is currently an addition of £100,000 to an individual’s personal allowance of £325,000. The additional relief will increase in incremental stages of £25,000 each year until the financial year of 2020/2021.
In 2020/2021 each individual entitled to the RNRB will have an additional relief of £175,000 to their personal Inheritance Tax Allowance of £325,000. This means that a single person who qualifies for the additional relief will have a potential Inheritance Tax Allowance of £500,000 and a qualifying couple will have a potential Allowance of £1M.
The main residence
The RNRB is conditional upon the main residence being passed down to an individual’s direct descendants. However, the RNRB is still available even if you have downsized or given away or sold your property (the ‘Downsizing Allowance’). In order for your property to still qualify for the additional RNRB you must have disposed of your residential property on or after 8th July 2015 by either complete disposal or by moving to a less valuable property.
The RNRB is limited so if the value of your property (after deducting any mortgage) is less than the RNRB, the remaining allowance cannot be used for any other assets in your estate.
Can the RNRB be transferred between spouses?
The RNRB is transferable between spouses or civil partners on death. It is the unused percentage of the RNRB from the estate of the first to die which can be transferred on the second death, much like the standard Nil Rate Band. This is irrespective of when the first death occurred or whether the first to die owned residential property at their death. If the first spouse died before 6th April 2017 there will always be an additional 100% RNRB unless the first spouse’s estate was greater than £2M. If the first spouse died after that date the percentage of their RNRB that can be transferred will depend upon how their estate passed under their will or intestacy.
Estates of £2M or more
The full RNRB is only available if the total value of your estate does not exceed£2M, and the RNRB will be tapered down for estates worth more than this. If your estate exceeds £2.2M then you do not qualify for the RNRB.