How Might the new residence nil-rate band effect your estate?

From April 2017, you may be able to pass on more of your estate on death without paying Inheritance Tax (IHT).

 

The “basic” nil-rate band (NRB) (£325,000 until 2020-21) will continue to apply.  In addition, a new residence nil-rate band (RNRB) is to be introduced.

 

The personal representatives of an estate will be able to claim RNRB, in addition to NRB, if:-

 

-      the deceased's interest in a residential property has been their residence at some point (e.g. a buy to let property that the deceased never lived in would not qualify); and

-      is left to one or more of the deceased’s direct descendants on death. This can be by the terms of their will, under intestacy or as a result of the rule of survivorship.

 

A ‘direct descendant’ means a child (including a step, adopted or fostered child) of the deceased and their lineal descendants (e.g. grandchildren). Therefore, if the deceased does not have children or does not leave his or her interest in a residential property to them, RNRB cannot be claimed.

 

The value of RNRB for an estate will be the lower of the net value of the interest in the residential property (after deducting any liabilities such a mortgage) or the maximum amount of the band.

 

The maximum amount will be phased in gradually between 6^th April 2017 and 6^th April 2020 as follows:-

 

2017–18 = £100,000

2018–19 = £125,000

2019–20 = £150,000

2020–21 = £175,000

 

It will then increase in line with Consumer Prices Index from 2021 to 2022 onwards.

 

As is the case with NRB, any unused RNRB will be transferable to a surviving spouse or civil partner.

If the net value of the deceased’s estate is above £2m after deducting liabilities (but before reliefs and exemptions), RNRB will be tapered away by £1 for every £2 where the net value exceeds £2m.

 

It is proposed that where part of the RNRB might be lost because the deceased had downsized or had ceased to own a residence (e.g. if they sold their property to fund their care) on or after 8 July 2015, that part of the RNRB will still be available provided that the deceased left a downsized residence or assets of equivalent value to direct descendants.

This is a brief summary of the proposed changes to the IHT rules. 

 

 

If you require detailed professional advice on wills, administering an estate, inheritance tax or estate planning, please contact our Wills, Trust and Probate department on 01702 352511.