31 Oct Inheritance Tax: Residence Nil Rate Band (RNRB)
At Egan Roberts Chartered Accountants & Financial Advisors we offer estate planning services including the related tax advice. It is important we now think carefully about the residence nil rate band (RNRB) when estate planning. Please read on if you would like to find out more.
What is the RNRB?
The RNRB was introduced in Finance Act 2015 and applies to deaths after 5 April 2017.
The basic nil rate band currently stands at £325,000 as it has since 6 April 2009 and will not change until 5 April 2021.
Rather than increase the £325k nil rate band to adjust for the effects of inflation and increases in house prices, the RNRB was announced.
The RNRB provides an additional nil rate amount when a person’s main residence is passed to their direct descendant on death.
It is worth noting here that the RNRB is only available on death; it cannot apply to a lifetime gift.
How much is the RNRB?
The RNRB is in addition to the basic nil rate band (£325k) and will be gradually introduced as follows:
Tax Year RNRB
After 6 April 2021 the RNRB will increase annually in line with the consumer price index.
When is the RNRB available?
The RNRB is available when a qualifying residential interest is closely inherited.
A qualifying residential interest is a residential property which at some point was occupied by the deceased as their residence.
It will be closely inherited if it is passed to any of the following:
• The deceased’s children or grandchildren and their spouses
• Widowers of those children/grandchildren if they have not remarried
• Step-children, adopted or foster children
• Children for whom the deceased acted as guardian whilst they were under 18 years old
In the same way as the basic nil rate band, if a person does not use their RNRB in full, any unused percentage can be transferred to the surviving spouse to be used in addition to their own RNRB.
The RNRB will be reduced by £1 for every £2 by which the deceased’s net estate exceeds a threshold of £2m. This threshold will also increase in line with the consumer price index.
As many people move into a smaller home or into residential care, the RNRB is still available on the estate if the person sold their home on or after 8 July 2015.
We hope you found the above information useful. If you would like to discuss estate planning or inheritance tax further, please contact Egan Roberts on 01254 583515.
Further guidance and information is available at https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band