The relief is being phased in over the next three years, with the initial RNRB of £100,000 effective for deaths on or after 6 April 2017. This will increase by £25,000 each 6 April until 6 April 2020, from when the full RNRB of £175,000 will apply. The RNRB is transferable between spouses, like the standard Nil Rate Band, but unlike that allowance, it cannot be used to relieve lifetime gifts.
When added to the standard nil rate band of £325,000, the RNRB will potentially relieve £500,000 from 6 April 2020 (so £1,000,000 for a couple). The RNRB will only be available where the main residence passes to a person’s children (including a child and spouse jointly) or lineal descendants on death.
The RNRB starts to taper where the death estate exceeds £2,000,000, reducing by £1 for every £2 of the excess, regardless of the value of the residential property. Hence, for an individual with an estate of £2,200,000 there will be no RNRB. This will rise to £2,350,000 in 2020/21. For a couple, this increases to £2,700,000, provided the RNRB is not used on the first death.
There are circumstances in which it may be beneficial to use a trust structure to bank the RNRB on the first death, particularly if this may reduce the death estate on the second death below £2,000,000.
This is a complex area and can produce some anomalous results. It is therefore important that any previous estate planning and Wills are reviewed in light of the RNRB to ensure that they remain effective, particularly if you are likely to have a death estate of £2,000,000 or more.
For more information on how the Residential Nil Rate Band may affect you and how we can help, please contact your usual Buzzacott contact or Mary Hase.
This article was taken from the Winter 2017 issue of the Private Client team's Quarterly Tax Digest. You can access all the other articles here.