In April 2017 we saw the introduction of the Residence Nil Rate Band (‘RNRB’); an additional inheritance tax allowance.
In April 2017 we saw the introduction of the Residence Nil Rate Band (‘RNRB’); an additional inheritance tax allowance. Our Tax and Estate Planning Solicitor Bekka Fuszard looks at the RNRB on the anniversary of its introduction.
You may remember the newspaper headlines prior to the introduction of the RNRB additional inheritance tax allowance in April 2017, boasting of a £1 million IHT allowance by the 2020/2021 tax year.
Many of these newspaper articles failed to adequately highlight that only individuals with a specific set of circumstances would be able to claim the full £1 million IHT allowance. Only a few articles touched on the concerns of many legal commentators who stated that the new RNRB allowance was too complex and arguably discriminatory.
As of 6 April 2018 an individual is entitled to a Nil Rate Band (‘NRB’) allowance of £325,000 and, if eligible, a £125,000 RNRB (previously £100,000). The RNRB is due to increase by £25,000 each tax year until 2020.
The £1 million figure can only be achieved by married couples where the estate has been left to the second spouse on first death, the second spouse dies after 6 April 2020 leaving an estate not exceeding £2 million and crucially, the second spouse must leave a residence worth at least the value of two RNRBs to qualifying descendants.
There are many intricacies of the RNRB legislation and potential pitfalls for individuals hoping to benefit from it. Although guidance has been released over the past year, these complexities remain. For example, what qualifies as a residence, what constitutes ‘closely inherited’ and who qualifies as a descendant? There are other matters to consider too, such as downsizing and owning more than one property. Therefore, it is highly recommend that you speak one of Whitehead Monckton’s Tax and Estate Planning team who are experts in the area and can assist with bespoke Will drafting and Inheritance Tax planning with the RNRB in mind.
Prior to its introduction, there were calls for the proposed RNRB to be replaced with a blanket increase of the main NRB allowance for all. One year on, there remains some hope for this and we do not know for sure how long the RNRB will be with us.