Since April 2017, the new (IHT) Residence Nil Rate Band (RNRB) has been available on death. In broad terms, the primary purpose of the RNRB is to allow more parents to pass on their home or some of its value, to their direct descendants, without paying IHT. The RNRB can also be utilised if there has been a downsizing by the parent(s) including on moving into care.
Over time, the estates of couples who are able to benefit fully from the new RNRB will have a total combined IHT-free allowance of £1 million (with effect from 6 April 2020), however, there are a number of traps which can prevent the RNRB from applying. For instance, where an individual’s estate exceeds £2 million in value there is a tapered withdrawal of the RNRB at a rate of £1 for every £2 over this threshold.
For deaths during the 2018/19 tax year the RNRB is £125,000, rising by £25,000 per year until it reaches £175,000 for deaths on or after 6 April 2020. The standard nil rate band (NRB) is frozen at £325,000 during this period.
Subject to meeting all necessary conditions, any unused NRB and RNRB can be transferred from the first married/civil partner to die to be used against the surviving married/civil partner’s estate.
The RNRB is a deceptively complex relief. Careful planning and record keeping are required and Wills may need to be reviewed, to ensure that this relief can be claimed. In addition lifetime planning might be required to benefit from it.
Please make sure you contact us if you would like to create a plan to reduce or reorganise your estate into a more IHT-friendly position.
