Residence Nil Rate Band
  • 21st Jun 2017
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This came into force on 6 April 2017, and new forms have been issued by HMRC to enable the appropriate claims to be made, for deaths arising after this date.  The procedure is not yet as streamlined as we would like, and we await the inevitable updates and new forms and guidance which will come out through the year. As we reported in 2016, the new provisions are complex, and not everyone’s estate will benefit from the changes, and the devil remains in the detail.

 Here is a reminder of the new rules:

Reminder of RNRB provisions

When a person leaves a residential property to direct descendants there will be an additional nil-rate band for inheritance tax purposes. 

It is attributable only to residential property, or the proceeds of property after downsizing

The property must have been a residence of the tax payer at the time of their death and only one property will qualify for the allowance so, if they had more than one residence in the UK, their executors will have to elect which one is to receive the RNRB. 

Direct descendants include natural and adopted children, grandchildren and remoter descendants.  It also includes step children and foster children, and the spouse or civil partner of a living or dead direct descendant, as long as any surviving spouse or civil partner has not remarried.  For the purposes of the RNRB, adopted children are treated as being the children of both the adoptive and the natural parents.  Direct descendants do not include brothers and sisters or nieces and nephews.  

Tax year

RNRB 

2017-18

£100,000

2018-19

£125,000

2019-20

£150,000

2020-21

£175,000

 

The current nil-rate band of £325,000 per person will continue to be available for the same qualifying range of assets as at present, and without restriction on who inherits the assets.

So, now, a married couple or civil partners who satisfy the criteria on the ‘property passing to descendants’ rule will have a potential combined allowance of £800,000 rising to £1 million by 2020; up from the current level of £650,000, with a resulting saving of inheritance tax of £140,000 at the maximum level.  A single person satisfying those criteria will have a £500,000 allowance by 2020, up from £325,000, giving a potential tax saving of up to £70,000.  

The new residence nil rate band, like the current nil-rate band, will be transferable to a surviving spouse or civil partner, if unused on the death of the first to die, as long as the first to die owned the property or a share in it. 

High value estates will not qualify for the additional relief, which will be tapered away for estate values at between £2m and £2.35m at a rate of £1 for every £2 over the £2m threshold.

Inheritance tax will continue to be charged at a rate of 40% on the value of an estate above any tax-free threshold.

 

There are complicated provisions for people who have downsized their property during their lifetime, and it is important that clear records are kept of property sales, as this information may be vital when trying to make a claim under the downsizing provisions. 

Trusts, which are commonly used in Wills, also present difficulties for clients, trying to make sense of the new legislation, and the impact on your estate.  We would recommend, if you are concerned about the availability of the residence nil rate band to your estate, that you get in touch so we can review your affairs and potential inheritance tax liability