What is the Residence Nil Rate Band?
You may have seen in the news that a new Inheritance Tax threshold was introduced on 6th April 2017. It is referred to as the Residence Nil Rate Band (RNRB) and it is an additional allowance and it may help to mitigate IHT that would otherwise be payable in your Estate at the time of your death. It is essential that you review your Wills now to ensure that they are up to date and will benefit from the RNRB.
The RNRB is applied to qualifying property in your Estate first and then the nil rate band (currently £325,000) is applied to the rest of your Estate. If the property is worth less than the RNRB then it cannot be applied to other assets in your Estate.
Will my estate benefit from the residence nil rate band?
The RNRB will apply in Estates where the death occurs after 6th April 2017. If a person dies after 6th April 2017 then they may be able to claim unused RNRB from a predeceased spouse or civil partner, even if the spouse or civil partner died before 6th April 2017. In order to qualify, you must own all or part of a property that you have lived in at some time and you must leave all or part of the property to your direct descendants.
For Estates worth more than £2million, the RNRB is reduced at a rate of £1 for every £2 over £2million, which means that it will not apply for Estates worth more than £2.2million. If this applies to you then you should seek advice about general estate planning to discuss ways in which you might be able to deal with assets in your Estate so as to qualify for the relief.
Who are direct descendants?
Direct descendants include children, grandchildren, stepchildren of the deceased, adopted children of the deceased, foster children of the deceased and children of whom the deceased was a guardian or special guardian.
How much is the RNRB?
The RNRB will start at £100,000 for 2017/18. It will rise to £125,000 for 2018/19, £150,000 for 2019/20 and £175,000 for 2020/21. These figures apply to an individual. Any unused part of the threshold is transferable between spouses or civil partners and so a couple may benefit from a double allowance.
What if I sell my home or downsize?
The RNRB will still be available if you have downsized or even if you no longer own a property provided that you sold your home on or after 8th July 2015 and at least part of your Estate is inherited by a direct descendant. The provisions in the law relating to downsizing are complicated, but it is essentially the amount of RNRB that has been lost as a result of selling your former home.
What if I have more than one home?
The RNRB can only apply to one property and it cannot be split across a number of different properties in your Estate. It can only apply to a property that you have previously resided in. Your executors would need to choose which one of the properties will benefit from the RNRB. Foreign properties can qualify for RNRB provided that you have resided it in at some time and provided that you are domiciled in the UK for tax purposes.
What should I do now?
We strongly recommend that you review your Will or make a Will if you don’t have one. The conditions for claiming the RNRB are complicated and you should seek expert advice to ensure that your family can benefit from the additional threshold.
If you would like your estate to benefit from the residence nil rate band, please contact Laura Willis at our Manchester office on 0161 832 3304, or Lewis Thompson at our Glossop office on 01457 860606.