The New Residence Nil Rate Band
From April 2017, a new Residence Nil Rate Band (RNRB) has been introduced which, for those who qualify, will mean that the amount of money that you can leave in your Will, before paying Inheritance tax, has increased and will increase further over the next few years. From 2020-2021 couples who qualify will have a maximum of £1,000,000 that they can leave, before paying Inheritance Tax.
So what is the new RNRB, how do you qualify and what do you need to do to make sure that these changes, if appropriate, apply to you?
WHAT IS THE NEW RESIDENCE NIL RATE BAND (RNRB)?
Inheritance tax (IHT) is charged on your death at the rate of 40% based on the value of your assets. This 40% rate is only charged on any value exceeding the nil rate band. The nil rate band (£325,000 in the tax year 2017-2018) is the amount which is chargeable to IHT at the rate of 0%.
From 6th April 2017 the RNRB now applies, so that less IHT may be paid when the family home is left to direct descendants such as children, grandchildren and some other individuals.
WILL MY ESTATE BENEFIT FROM THE NEW RNRB?
Your estate will benefit from the RNRB, in addition to the main nil rate band, if you leave your interest in the family home to direct descendants such as children or grandchildren and some other individuals such as stepchildren or foster children as well as the spouses or civil partners of any of these ("qualifying beneficiaries").
The RNRB could help those who inherit your assets make an additional IHT saving by increasing the part of your estate that is taxed at 0% rather than 40%. Claiming the RNRB could enable an additional £100,000 to £350,000 worth of assets to pass to the next generation without a charge to IHT.
The RNRB can be claimed if all of the following apply to you:
- You leave an estate valued at less than an upper limit, which is initially £2 million but is set to rise with inflation from 6 April 2021 (the RNRB is tapered down for estates worth more than this); and
- You leave your home to qualifying beneficiaries. Some trusts for these beneficiaries also qualify.
If your estate is worth more than £2 million you should still review your will and estate planning to see whether it is possible to arrange your affairs so that the RNRB can be claimed.
HOW MUCH IS THE RNRB WORTH?
The combined nil rate bands could be worth as much as £1 million by 2021. These figures may change so it is important to check from time to time.
|Tax year||RNRB||Main nil rate band||Combined nil rate bands for both spouses or civil partners|
WHAT IF I SELL MY HOME?
The family home does not need to be owned at death to qualify.
The RNRB will still be available where you have sold your home and downsized to a less valuable property, or even if you no longer own a property, provided that you sold your home on or after 8 July 2015 and at least part of your estate is inherited by a qualifying beneficiary.
WHAT IF I MOVE OUT OF MY HOME?
The RNRB will apply if you own a property that is no longer your residence when you die (for example, because you have moved into a care home), provided that it was your residence at some time during your period of ownership.
WHAT IF I HAVE GIVEN MY HOME TO MY CHILDREN ALREADY?
Even if you have already given away your home to your children, if you still benefit from the property in some way without paying for it, for example, you continue to occupy it even though it has been given away or if you are co-occupying with your children after having transferred it to them, it may still be possible to claim the RNRB on your death. However, it is still advisable to review your will.
WHAT IF MY CHILDREN DO NOT WANT MY HOME AFTER I DIE?
It does not matter whether the qualifying beneficiaries who inherit your home want to keep it. The RNRB will still be available even if they sell your home immediately after your death.
WHAT IF I HAVE MORE THAN ONE HOME?
If you own more than one property that is (or has previously been) your residence when you die, your executors must choose which one will benefit from the RNRB.
WHAT MUST I DO TO MAKE SURE I QUALIFY?
It is recommended that your Wills are reviewed every few years or when there has been a change in the law which may apply to you.
The terms of your will can affect the ability to claim the RNRB, so it is important to review your will now (or make one if you have not already done so) to make sure that your family can claim the RNRB when you or your spouse or civil partner die.
This literature is intended purely as an overview of this topic and does not constitute legal advice.