Help needed with inheritance tax ?

The little known residential nil rate band (RNRB) is an additional IHT nil rate band introduced in 2017 which is available for use when residential property is left to direct descendants.  It was introduced to address situations where a family home takes an individual’s estate over the IHT nil rate band (broadly £325k or £650k for a couple) and was enacted to help families who might be forced to sell the family home on the second death in order to meet their IHT liability. Since 2017 the allowance has increased and by April next year (2020) this additional nil rate band will have reached its maximum legislated allowance of £175k or £350k per married couple.

As ever with tax, nothing is quiet as simple as it first appears and there are some interesting conditions that impact on the availability and use of the RNRB:

There has to have been ownership or part ownership of a property that was the deceased’s residence at some time during their lifetime,

However, the RNRB is still available in some cases were the deceased has “downsized” or sold a property to move into residential care

It is the net value of the home that is taken into account, so equity release schemes can be detrimental to a RNRB claim

The property must be passed to direct descendants – so the availability is restricted to individuals who have had children

Also the RNRB is only transferable between spouses (or those in a civil partnership) so marriage can be good tax planning.

The RNRB is tapered if the estate of the deceased individual exceeds £2million.  This means the share of ownership and how joint ownership is structured between spouses can be very important.  Once a chargeable estate exceeds £2.7 million the RNRB is entirely lost.

Whilst the £2million limit is calculated  without taking any deduction for two important IHT reliefs, being those for business and agricultural property, it is the estate on death that matters, and gifts within 7 years of death (or indeed even on the day before death) are effective when considering this £2 million limit.

In the time since the RNRB was introduced I have been able to advise a number of clients with estates around the £2-3million mark on how to maximise the availability of this valuable relief.  Given that the full RNRB of £350,000 can be worth a whopping £140k reduction to an IHT liability, regularly reviewing estates and wills to retain and maximise your relief is crucial.

For help and guidance on IHT or any tax matters please contact our Tax Director Mary Tierney on 01606 721300