The Residence Nil Rate Band is an additional inheritance tax allowance associated with estates that include a property or a share of a property.
This additional tax allowance was implemented by HMRC back on the 6th of April of 2017 and allows for executors to potentially claim up to £100.000 which can be added on top of the current Nil Rate Band of £325.000. HMRC has announced that the Residence Nil Rate Band will gradually increase in increments of £25.000 with the passing of each financial year, reaching the maximum of £175.000 by 2020. This is designed to accommodate for inflation in the property market.
It is worth noting that HMRC’s site contains useful information in terms of when to make a claim for the RNRB, however they cannot provide tax planning advice on an estate’s entitlement to the RNRB or comment on how to make use of it. It is therefore imperative for people to seek professional advice when dealing with such estates, to be fully aware of the limitations and exceptions to the rule.
For example, an executor can only make a claim for the Residence Nil Rate Band if the deceased passed after the date of implementation of the rule, and only if the property in question is being passed on to direct decedents of the deceased, (i.e. children, grandchildren). The tax allowance can be migrated from one spouse to the other, and can be claimed retrospectively, even if one of the spouses passed before the implementation of the rule.
The entitlement can also be affected by the overall value of the estate. Estates that are worth more than £2 million, will have the Residence Nil Rate Band gradually withdrawn/tapered away.
It is also worth noting that if a person’s estate includes several different properties, than the RNRB can only be claimed for one residential property and only if it was used as the deceased’s residence, not for commercial purposes or to let.
One more point to consider is that the family home does not need to be owned at death in order to make the claim, this was designed to accommodate those who may have downsized or sold the house to go into long term care.
When planning for their estate and the way their assets will be passed on to their loved ones, it is important for people to obtain advice before putting in place arrangements that may have an adverse effect to Residence Nil Rate Band entitlement. In example, with a Will which places the property into a discretionary trust, the claim for the RNRB may be lost.
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