What is the Residence Nil Rate Band?
The Residence Nil Rate Band was first introduced on 6th April 2017. The Residence Nil Rate Band provides individuals with an additional allowance of up to £175,000 (depending on the value of the property) upon which no inheritance tax will be payable, subject to certain conditions being met.
This can be used in addition to the standard Nil Rate Band worth up to £325,000.
Individuals who meet the criteria for the Residence Nil Rate Band can therefore potentially leave up to £500,000 of their estate without any inheritance tax being payable.
The Residence Nil Rate Band is transferrable between spouses, if not used on first death.
Therefore, if a wife inherits her husband’s estate, his estate will be exempt from inheritance tax due to the spouse exemption. The husband won’t have used his Nil Rate Band or his Residence Nil Rate Band, so both can be transferred to his wife’s estate following her death. This means that on her death, she could leave an estate of up to £1 million before any inheritance tax is payable.
How does my Estate Qualify?
To benefit from the Residence Nil Rate Band, at the point of your death you must own or have previously owned a property (or a share in a property) that you used as your main residence at some stage during your lifetime. You must then leave the property to direct descendants i.e. your children or grandchildren (stepchildren are also included).
Is There any Other Reason That I may not be Entitled to Claim the Full Residence Nil Rate Band?
The Residence Nil Rate Band will be capped at £175,000 or the value of your property if this is less than £175,000.
The remaining Residence Nil Rate Band cannot be offset against other assets.
For example, if Mr Smith died and left the following assets:
• Cash and other assets – £600,000
• Property – £120,000
• Total - £720,000
Mr Smith’s Personal Representatives could claim his Nil Rate Band of £325,000, but could only claim a Residence Nil Rate Band of £120,000. This would mean that the balance of Mr Smith’s estate worth £275,000 would be subject to inheritance tax at a rate of 40%.
However, if Mr Smith was a widow and he was the sole beneficiary of his late wife’s estate then his estate can benefit from her unused Nil Rate Band meaning that no inheritance tax would be due.
To claim up to £175,000 in respect of the Residence Nil Rate Band, your estate must be worth less than £2 million. If your estate is worth over £2 million, the Residence Nil Rate Band will be tapered and will reduce at the rate of £1 for every £2 over £2 million.
Therefore, if the value of your estate exceeds £2.35 million then you may not be able to claim any Residence Nil Rate Band.
It is also important to note that the Residence Nil Rate Band only applies on death and is therefore not available for lifetime gifts.
How Can Timms Help?
If you have any questions about inheritance tax and/or estate planning, then please contact me on 01283 214 231 or via email at s.wildsmith@timms-law.com
