What is the Residential Nil Rate Band (RNRB)?
The RNRB is an additional inheritance tax allowance available to individuals who are leaving their home to their lineal descendants. Lineal descendants include; your children, stepchildren, adopted children, foster children, grandchildren and great grandchildren.
The maximum RNRB currently available to deaths this year is £150,000 and is set to increase to £175,000 in the 2020/21 tax year. When added to the ordinary Nil Rate Band (NRB) this could result in the first £500,000 of a person’s estate becoming free of inheritance tax. However, the RNRB is limited to the equity held in the principle residence.
The RNRB is not available on larger estates. The amount of RNRB available starts to reduce by £1 for every £2 an estate is valued over £2,000,000. This means that currently estates over £2,300,000 for single people or £2,600,000 for married couples will not be eligible for RNRB.
The maximum a married couple or civil partners can own before Inheritance tax is payable is higher this is because they also have a Transferable Nil Rate Band (TNRB) that may be available. This is because there is no inheritance tax on transfers between married couples or civil partners. Which means any unused NRB or TNRB when the first spouse dies could potentially be utilised on the death of the survivor, doubling the total allowance to £1,000,000 (from April 2020).
If a person is domiciled in the UK their worldwide estate is subject to UK IHT, so in this case the RNRB may be applied to a property that is located abroad. If a person has a non-domiciled status then their property must be situated in the UK for the RNRB to apply, as only their UK estate will be subject to UK IHT.
Kevin dies in 2021 when the RNRB is worth £175,000 leaving his house worth £100,000 to his son. The RNRB available to his estate is capped at £100,000 and the remaining £75,000 cannot be offset against any other property. Note that it may not always be lost completely, as any unused RNRB can be transferred if Kevin is survived by a spouse or civil partner.
For more information on the Residential Nil Rate Band or to arrange an appointment to give instructions please contact our office on 020 8681 8451