The Residence Nil Rate band, and the Inheritance Tax rules that come with it, is a tricky subject. These rules are often very complicated, and depending on your circumstances, it’s an unwanted bill that can really make an impact if you don’t take advantage of the allowances available to you.
Luckily, not everyone will be subject to Inheritance Tax, and there are ways to mitigate the eventual cost of it. An important part of this is the Residence Nil Rate band, which is the threshold above which an individual’s estate accrues Inheritance Tax.
What is the Residence Nil Rate Band?
The Residence Nil Rate Band (or RNRB for short) grants those leaving their homes to children or grandchildren an extra threshold on top of the Nil Rate Band, which is currently frozen at £325,000 until April 2021.
This means that if you’re leaving your direct descendants your home and it exceeds the £325,000 Nil Rate Band, you can add an extra £150,000 to the threshold. This main threshold is due to go up to £175,000 in April 2020.
When did the Residence Nil Rate Band start?
The extra threshold for residential properties was introduced in April 2017. Before this, those leaving homes to their children didn’t get an additional sum to the threshold, meaning they were more likely to incur Inheritance Tax on their estate.
Who can claim Residence Nil Rate Band?
Descendants of the individual can claim Residence Nil Rate Band if the individual passed away after April 2017, their estate includes a residence owned by the individual and if the descendant directly inherited the residence.
What happens if my home is part of a trust?
If your home is part of a trust when you pass away, whether it qualifies for the extra threshold depends on the circumstances of the trust. This is because the type of trust will affect how HMRC determines whether your home is part of your estate and whether your direct descendants are legally inheriting the residence.
What if I own more than one property?
The extra sum is applicable to only one property. If you own more than one property, you’ll have to decide which one you’d like to qualify for the additional threshold.
How do I claim transferable Nil Rate Band?
If you were to pass away with your £325,000 Nil Rate Band unused, your spouse or civil partner can claim transferable Nil Rate band to be used in the event of their death instead. This applies to deaths on or after 9th October 2007. This sum will then be added onto your spouse’s or civil partner’s Nil Rate Band.
For deaths on or after 6th April 2017, any unused Residence Nil Rate Band will also be applied to the Inheritance Tax threshold of your civil partner or spouse.
How do I make sure that my estate qualifies for the Residence Nil Rate Band?
To make sure your estate qualifies, it’s important to speak to an independent financial adviser. They can guide you in the right direction regarding Inheritance Tax, whether your home qualifies for this specific threshold, and which actions you should be taking to mitigate against unexpectedly large Inheritance Tax liability.
To speak to an independent financial adviser, contact our teams in Warwick, Birmingham or London. We can support you every step of the way and ensure that you are well-prepared for the future.