10 April 2017

Inheritance Tax: residence nil rate band (RNRB)

An estate will be entitled to the RNRB if the individual dies on or after 6th April 2017 and that individual owns a home that is included in their estate which is inherited by that individual’s direct descendants e.g. children and grandchildren . The value of the estate must not exceed £2 million for the RNRB to apply.

The maximum available amount of the RNRB will increase yearly and for the following tax years the amount available will be as follows:

2017/18 - £100,000

2018/19 - £125,000

2019/20 – £150,000

2020/21 – £175,000

The RNRB applies in addition to the existing nil rate band (NRB) which is currently set at £325,000. However, the amount of RNRB available will be the lower of the figures indicated above for the relevant tax year and the value of the home which is inherited by direct descendants.

For example:

X dies in the tax year 2019/20 and leaves a home worth £300,000 and other assets worth £190,000 to his children. The maximum available RNRB in that tax year is £150,000. Therefore X’s estate has the maximum amount of RNRB available of £150,000 and the NRB (assuming X hasn’t made any lifetime gifts or lifetime chargeable transfers) of £325,000. Therefore the amount liable to inheritance tax in this case is the estate value less the RNRB and NRB which is £15,000.

If X died in the tax year 2015/2016, the amount liable to inheritance tax would have been £165,000 as the RNRB was not available.

If you require any inheritance tax planning advice about how the new RNRB may affect your estate, please call us to arrange your 30 minute free consultation appointment.