Inheritance Tax main residence nil-rate band
The new Inheritance Tax main residence nil-rate band (RNRB) comes in to effect from April this year. The initial allowance will be £100,000 from 2017-18, increasing to £125,000 in 2018-19, £150,000 in 2019-20 and £175,000 in 2020-21. The RNRB is a new transferable allowance for married couples and civil partners (per person) when their main residence is passed down to children after their death. Any unused portion of the RNRB can be transferred to a surviving spouse or partner in a similar way to the existing Inheritance Tax nil-rate band (NRB).
The allowance will be available to the deceased person’s children or grandchildren. HMRC’s guidance explains how the RNRB will apply in most circumstances and includes 18 case studies with workings on some common scenarios. The legislative provisions have been drafted to ensure that an estate will be entitled to the RNRB where an individual downsized to a smaller property on or after 8 July 2015. This is the date the measure was first announced.
The RNRB is on top of the existing £325,000 Inheritance Tax threshold. Taken together this means that by 2020-21, parents will be able to pass on property worth up to £1 million free of Inheritance Tax to their direct descendants. There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2m. This will be at a withdrawal rate of £1 for every £2 over this threshold.