Skip to main content

The New Residential Nil-Rate Band

Posted on May 11th 2017 by

What is it?

Together with the current transferable nil rate band of £325,000, the new Residential Nil Rate Band (“RNRB”) may add an additional tax-free allowance of £175,000 to your estate by 2021. This allowance will also permit married and civil partnership couples to potentially leave assets with a value of up to £1 million free of inheritance tax (subject to certain provisions as detailed below). 

The “RNRB” started at £100,000 on 6th April 2017 and will be increase by £25,000 each year up until 2020 where the maximum allowance of £175,000 will be available. See the table below for a breakdown:-

 

Maximum residence nil rate band available to each individual

Current nil rate band (frozen until 2021)

Total Nil rate band available per individual

2017-18

£100,000

£325,000

£425,000

2018-19

£125,000

£325,000

£450,000

2019-20

£150,000

£325,000

£475,000

2020-21

£175,000

£325,000

£500,000

What are the criteria?

Firstly, it applies to any individual who died on or after the 6th April 2017. Secondly, at the time of their death they must have owned a Qualifying Residential Interest (“QRI”) in a dwelling house. Thirdly, this interest must be closely inherited on their death. Finally, the value of the estate as a whole needs to be below £2 million; otherwise the “RNRB” is reduced with a tapered rate of £1 for every £2 over this threshold.

A “QRI”, is an interest in a dwelling house that was the deceased person’s residence at some time during their ownership, and that interest is still comprised in their estate immediately before death. If your estate includes two or more “QRI”s, then it will be your executor’s decision to nominate which property they wish elect to qualify for the “RNRB”. Note that If the property value falls below the allowance, then the allowance will be reduced to match the property value.

Additionally, to be “closely inherited”, the QRI must either pass to a lineal descendant outright or on certain types of trusts. Lineal descendants are broadly defined to include children, adopted children, step-children, foster children, and children to whom a guardian or special guardian has been appointed. 

Can you transfer any unused Residence nil rate band?

Yes, it is possible to transfer any unused RNRB between a spouse or civil partner even if the first person died before the 6th April 2017. Again, this is dependant on the above criterion being satisfied. This can be discussed in further detail in a meeting with one of our experts here at Kitsons.

What if I sell my home or downsize?

An estate will still be able to benefit from the “RNRB” if the deceased downsized or disposed of their property after July 7th 2015. Therefore, if a person had to move into care and sold their home, then the allowance will still be available on the sale price of that property as long as the sale occurred after 7th July 2015.

Additionally, where a person gifts their home and continues to benefit from it, for example, by living in the property, HMRC will treat that property as being included in the estate.

What are the effects of this new legislation?

Those who do not own a property i.e rented or reside in a care home having sold their property over 10 years ago will not benefit from the “RNRB”. There are also many other situations where this allowance would not be a benefit, such as leaving your estate to your partner having not married or not in a civil partnership, or leaving your estate to your sibling not having any lineal descendants.

What should you do now?

Having considered the information above, you may feel that you do not necessarily need to update your Will, but it is vital at the very least to consider meeting with us if you have not had your Will reviewed for some time. This is vital if you do not have a Will in place at all. Additionally, it is imperative to discuss your Will if your circumstances have changed, for example you have married, divorced, separated or have had children.

 

 

This entry was posted in Blog Posts, Conveyancing by . Bookmark this permalink.

Leave a comment

Categories

Authors

Archive