Since April 2017 it has been possible to claim the Residence Nil Rate Band (RNRB). The RNRB is a particular relief against property held in a person’s Estate on death which might be liable to inheritance tax at 40%. The relief will be £100,000 in 2017/18 rising incrementally to £175,000 in 2020/21, and will generally be available when property is left to direct descendants.
The availability of the RNRB should not be regarded as a certainty and advice should always be obtained during an individual’s lifetime. As inheritance tax advisors in Cheshire, we have extensive experience advising on issues that might affect the availability of the RNRB and will be able to assist you.
For example for Estates valued at more than £2 million, the RNRB and any transferable RNRB may be withdrawn or tapered away. The taper restriction means that the RNRB will be reduced by £1 for every £2 that the deceased’s Estate exceeds £2 million. In addition when applying the taper restriction the value of any spouse or civil partner exemption and Agricultural or Business Property Relief are completely ignored. Careful life-time planning can reduce the value of the estate below the threshold at which tapering starts. In particular, farmers and business owners should seek IHT advice at an early stage for estate planning.
Advice should also be taken when property is gifted to a discretionary trust as the RNRB will not be available, however with the use of tax legislation it is possible to effectively rewrite the Will and make it efficient for the purposes of the RNRB. If using an interest in possession trust, then the RNRB will be available, but on the death of the beneficiary the property must be inherited by direct descendants. A disabled trust would also qualify for the RNRB.
If the Estate doesn’t qualify for the full amount of the RNRB and the former home has been disposed of or downsized, then a higher rate of relief may still be claimed based on the value of the prior residence. This applies to deaths after 6 April 2017 when the residence has been downsized or disposed of after 8 July 2015. Different rules apply depending on whether you have downsized or disposed of a property completely so appropriate tax advice should be sought.
Cheshire Accountants, Afford Bond have specialist inheritance tax advisors who will be happy to help you consider the RNRB and how it will affect you. Please contact Paul.Edwards@affordbond.com for further details or use the Contact form on our website.