As ever, there’s nothing simple about the new Residence Nil Rate Band (RNRB) allowances and rules which is why we’ve laid out the basics below. Inheritance Tax and RNRB are complicated and are totally dependent on each individual so we would always recommend seeking the help of a professional if you want to get further in depth with it.
This is where a host of regulations of what qualifies and how you dispose of the property and to whom, or the allowance won’t apply you’ll find these below…
An estate will be entitled to the Residence Nil-Rate Band (RNRB) if the:
- Individual dies on or after 6 April 2017.
- Individual owns a home, or a share of one, so that it’s included in their estate.
- Individual’s direct descendants such as children or grandchildren inherit the home, or a share of it.
- Value of the estate isn’t more than £2 million.
An estate will also be entitled to the RNRB when an individual has downsized to a less valuable home or sold or given away their home after 7 July 2015.
The maximum available amount of the RNRB will increase annually.
For deaths in the following tax years it will be:
- £100,000 in 2017 to 2018
- £125,000 in 2018 to 2019
- £150,000 in 2019 to 2020
- £175,000 in 2020 to 2021
For later years, the maximum RNRB will increase in line with inflation (based on the Consumer Prices Index). Any unused RNRB when someone dies can be transferred to the deceased’s spouse or civil partner’s estate.
This can also be done if the first of the couple died before 6 April 2017, even though the RNRB wasn’t available at that time.
For estates valued at more than £2 million, the RNRB (and any transferred RNRB) will be gradually withdrawn or tapered away.
Although you don’t need to make a formal claim for the RNRB, you’ll need to give details of the amount due and supporting information on the IHT return following a death.
You’ll need to make a claim to transfer any unused RNRB from the estate of a late spouse or civil partner. You’ll also need to make a claim for any additional RNRB as a result of downsizing or disposal of the home before death.
The RNRB only applies to the estate of a person who’s died. It doesn’t apply to gifts or other transfers made during a person’s lifetime. This includes gifts that become taxable because they’ve been made within 7 years of a donor’s death.
Where someone gives away their home and continues to benefit from it, for example, by living in the property, HMRC treats that home as being included in the estate. So the RNRB may be available for that home if it’s given away to a direct descendant.
We’ve created a guide full of case study’s to help you put the RNRB into perspective and to try and make every situation as easy to follow as possible. To get your hands on a copy get in touch.