Main Residence Nil Rate Band
The impact of Inheritance Tax has been reduced recently for families that own their own home. HMRC has introduced a new relief, the Inheritance Tax main residence nil-rate band (RNRB), which came into effect on 6 April 2017.
The RNRB is a transferable allowance, that is available to the estates of both parties in a marriage or civil partnership, when their main residence is passed down to a direct descendent: for example, their children or grandchildren. The RNRB is available in addition to the existing £325,000 Inheritance Tax nil-rate band (NRB) threshold.
The RNRB is being introduced in stages:
- Initially, £100,000 in 2017-18
- £125,000 in 2018-19
- £150,000 in 2019-20, and
- £175,000 in 2020-21.
Any unused portion of the RNRB can be transferred to a surviving spouse or partner in a similar way to the existing NRB. The combined benefit of these two reliefs, means that by 2020-21, parents will be able to pass on their private residence – to a value of up to £1 million – free of Inheritance Tax to their direct descendants.
From 2021/22 onwards the RNRB is due to increase annually in line with the Consumer Prices Index (CPI). However, there will be a tapered withdrawal of the RNRB 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.
Technical notes: to qualify for the RNRB:
- The deceased’s estate must include a residential property or qualify under the downsizing rules.
- The RNRB is transferable where the second spouse or civil partner dies after 5 April 2017, irrespective of when the first partner died.
- If there is more than one residential property, the personal representatives of the deceased person can nominate the property to qualify for the relief.
- The property must have been a residence of the deceased. A buy-to-let property would not qualify for the relief.
- The property must be left to a direct descendant (including a step-child, adopted child or foster child) or other lineal descendant of the deceased.
Planning advice:
Readers who have not reviewed their estate planning since this new relief was announced, should consider their options. Estate planning, to mitigate the effects of Inheritance Tax, is a moveable feast. To stay ahead of the planning curve, it will benefit couples with a significant investment in their home to reconsider their Wills and any new opportunities to reduce a possible 40% estate tax. We can help. Please call if you would like more information.