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Minimising inheritance tax using the Residential Nil Rate Band

The Residential Nil Rate Band – RNRB has been phased in by HMRC over the past four tax years. It is available when property is left to direct descendants, but planning is required to secure the full £175,000 rate that is effective from 6 April 2020.

The Residential Nil Rate Band – RNRB has been phased in by HMRC over the past four tax years. It first applied in respect of deaths after 6 April 2017 at a rate of £100,000, increasing by £25,000 annually. Effective from 6 April 2020 the full £175,000 now applies. 

Just like the standard Nil Rate Band (NRB) of £325,000 it is transferrable between spouses meaning that a married couple would now have combined RNRBs and NRBs of £1,000,000 (£325,000 + £175,000 each) for Inheritance Tax (IHT) purposes. 

There are some differences between the two reliefs that need to be considered. The RNRB only applies against transfers of a qualifying residence on death to direct descendants (children, including adopted, step and foster children and grandchildren). It cannot be used to relieve lifetime transfers that fall into the IHT net.

The RNRB is tapered away if the death estate exceeds £2,000,000, reducing by £1 for every £2 of the excess. Therefore, the estate of an individual with a value of £2,350,000 or more, would have the RNRB reduced to nil. In the case of a couple where the RNRB was not used on the first death, the RNRB would be tapered down to nil where the estate of the second to die is £2,700,000 or more.

There is planning that can be considered for both individuals and couples to secure the relief where it may otherwise not be available. This would particularly be the case where there is an opportunity to reduce the value of the death estate to £2,000,000 or less for an individual, or indeed a surviving spouse. 

Perhaps now is a good time to review your current will or look at the estate planning opportunities that may be available to you.

About the author

Richard Pott

+44 (0)20 7556 1295
pottr@buzzacott.co.uk

The Residential Nil Rate Band – RNRB has been phased in by HMRC over the past four tax years. It first applied in respect of deaths after 6 April 2017 at a rate of £100,000, increasing by £25,000 annually. Effective from 6 April 2020 the full £175,000 now applies. 

Just like the standard Nil Rate Band (NRB) of £325,000 it is transferrable between spouses meaning that a married couple would now have combined RNRBs and NRBs of £1,000,000 (£325,000 + £175,000 each) for Inheritance Tax (IHT) purposes. 

There are some differences between the two reliefs that need to be considered. The RNRB only applies against transfers of a qualifying residence on death to direct descendants (children, including adopted, step and foster children and grandchildren). It cannot be used to relieve lifetime transfers that fall into the IHT net.

The RNRB is tapered away if the death estate exceeds £2,000,000, reducing by £1 for every £2 of the excess. Therefore, the estate of an individual with a value of £2,350,000 or more, would have the RNRB reduced to nil. In the case of a couple where the RNRB was not used on the first death, the RNRB would be tapered down to nil where the estate of the second to die is £2,700,000 or more.

There is planning that can be considered for both individuals and couples to secure the relief where it may otherwise not be available. This would particularly be the case where there is an opportunity to reduce the value of the death estate to £2,000,000 or less for an individual, or indeed a surviving spouse. 

Perhaps now is a good time to review your current will or look at the estate planning opportunities that may be available to you.

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