Inheritance Tax – Residence Nil Rate Band
In her latest Wills and Probate blog, Jo Robinson answers some key inheritance tax questions such as what is the residence nil rate band? And how does my estate qualify?……
What Is The Residence Nil Rate Band?
The Residence Nil Rate Band allowance (RNRB) was introduced in April 2017 and provides individuals with an additional inheritance tax allowance of up to £175,000, subject to certain conditions being met.
The RNRB is in addition to the standard Nil Rate Band (NRB) allowance of £325,000 that applies on death which means that each individual can potentially leave up to £500,000 tax free.
Both allowances can be transferred to a surviving spouse if the deceased spouse’s allowances weren’t utilised. This means that spouses or civil partners can potentially leave up to a £1 million free of inheritance tax.
How Does My Estate Qualify?
In order to qualify, you must have owned a property (or a share in a property) that you have lived in as your home at some stage during your lifetime. You must also leave the property (which could be part of your estate) to direct descendants such as children or grandchildren etc. For further information regarding the strict rules please visit Work out and apply the residence nil rate band for Inheritance Tax – GOV.UK (www.gov.uk).
If your estate is over £2 million then the RNRB is reduced at the rate of £1 for every £2 over £2 million. It only applies on death and not on gifts or lifetime transfers.
In addition, the RNRB is capped at the value of the property and cannot be applied against other assets. For example, if Ms Smith died leaving the following estate:
• Cash – £500,000
• Property – £150,000
• Total – £650,000
Her Personal Representatives could claim the standard NRB of £325,000 and the RNRB of a maximum of £150,000. Inheritance tax would then be due on the balance of £175,000 at 40%.
However, if Ms Smith was a widow who inherited her husband’s entire estate on his death then her Personal Representatives could claim Ms Smith’s NRB of £325,000 and her late husband’s NRB of £325,000 which means that the RNRBs would not be required to exempt the estate from inheritance tax.
Is There Anything Else I Should Know?
There are important points to deliberate if you are considering downsizing, or if you wish to leave the property to beneficiaries on their attaining a certain age, or if your Will includes a trust. It is therefore always important to seek professional advice.
For further advice regarding this article of if you have a question regarding Wills, Probate, Powers of Attorney, Tax or Trusts, please telephone me on 01332 364436 or e-mail me at j.robinson@timms-law.com.
Jo Robinson
May 2021