What is the “Residence Nil Rate Band”?
From April 2017 an additional inheritance tax allowance, the Residential Nil Rate band (RNRB) will be introduced. Starting at £100,000 and increasing to £175,000 by 2020/21 the RNRB will be in additional to the Nil Rate Band (currently £325,000) and the Transferable Nil Rate Band (the ability to transfer the Nil Rate Band between spouses/civil partners).
The RNRB will be available to people who die after 6th April 2017, leaving their main (qualifying) residence to “lineal descendants” whether by Will, intestacy or survivorship. If the property passes to a trust rather than by way of an outright gift, then the RNRB will only apply in certain circumstances, depending on the beneficiaries and nature of the trust.
The RNRB will be transferable between spouses and civil partners but will be tapered if the estate of the deceased exceeds the taper threshold, initially being £2 million.
Why do I need to think about this now?
It’s always a good idea to keep your Will under review anyway, but the forthcoming introduction of the RNRB is a good reason to get your Wills out and discuss them with us.
Whilst many Wills will already comply with the rules relating to the new allowance, there are many common situations where they will not. For example, if your Will leaves your entire estate to your children, there should be no problem with your estate claiming the RNRB, provided the other conditions are met.
If, however, your Will leaves your estate to your grandchildren either directly, or in the event that your child has predeceased, then the availability of the allowance may be lost if the gift to the grandchild has conditions attached, such as them having to reach a certain age before they become entitled.
This is quite a common way to draft gifts to grandchildren, and it is therefore a good idea to review your Wills and take advice on any possible changes that you can make now to preserve the availability of the new allowance.