Residence Nil Rate Band (RNRB) - at a glance
Posted 24th October 2018
Originally, the residence nil rate band (RNRB) was set at £100,000 but increases by £25,000 each year until it reaches £175,000 in April 2020. Acting the same way as the standard nil rate band, any unused residence nil rate band (RNIB) on the first death of a married couple (or civil partners) has the potential to be transferable, even if the first death occurred before 6 April 2017.
There are a number of conditions that the residence nil rate band comes which could mean that it is not available – or available in full – to everyone.
Here is a snapshot of everything that you need to know about Residence Nil Rate Band (RNRB):
As stated above, it started at £100,000 and will be phased in over the course of 4 years at £25,000 per year until it reaches £175,000 in 2020.
Transferring residence nil rate band (RNRB)
The residence nil rate band (RNRB) will be transferrable between spouses/civil partners on death the same as the standard nil rate band. The unused percentage of the residence nil rate band (RNRB) from the estate of the first to die can be claimed on second death regardless of when the death happened.
Dimishing residence nil rate band (RNRB)
If you have a large estate then you may not see a benefit from the extra residence nil rate band (RNRB). If the deceased’s estate exceeds £2million, the residence nil rate band (RNIB) will be reduced by £1 for every £2 over. This essentially means that there will be no residence nil rate band (RNIB) available if the deceased held assets over £2.2million. This will rise to £2.35million in 2022 when the full £175,000 allowance kicks in.
Who can benefit?
The residence nil rate band (RNRB) is exclusively where the main residence passes to children. This includes step children, adopted and fostered children. It is also accepted where the family home passes into the joint names of the deceased’s child and their spouse.
House passing into Trust
For a number of Trusts which are for the benefits of children/grandchildren, the residence nil rate band (RNRB) will not be lost. If the Trust gives an interest in the possession in the home, the residence nil rate band (RNRB) can still be claimed. Other Trusts (including Disabled Persons Trusts) will retain the additional nil rate band. Our Family Protection Trust will also retain the residence nil rate band (RNRB).
Owning more than one property
Only one residential property can qualify for the residence nil rate band (RNRB). The deceased must have resided at the property for this to take effect.
Joint Tenancy issues
If you hold your home as joint tenants, this will mean that on first death the house passes to the surviving owner with no IHT due to the spouse exemption. The residence nil rate band (RNRB) is not used on first death, with the surviving partner inheriting the full and unused allowance. If the combined estate on second death is greater than £2million, this could mean that both residence nil rate bands (RNRB’S) could be lost due to the diminishing amount.
If joint tenants switch the ownership to tenants in common, this will allow each spouse to control how the property passes on death which could potentially preserve their residence nil rate band (RNRB) by keeping the assets below £2million. On first death, the deceased could use their residence nil rate band (RNRB) by leaving part of their share of the home to their children which would reduce the value of the survivor’s net estate. This could also be further reduced if the deceased gives more away up to their original nil rate band (£325,000) which could result in the estate being reduced by up to £500,000.
We recommend reviewing an existing Will every couple of years. If you have questions about the residence nil rate band (RNRB) and your current Will then contact us now.
When it comes to inheritance tax (IHT), set in force is the standard nil rate band, currently set at £325,000 (this is the amount you are permitted to inherit before paying inheritance Tax). As well at this, there is a new residence nil rate band (RNRB) which was introduced from 6th April 2017. This is available when residential property is left to direct descendants.
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