Inheritance Tax Update – New “Residence Nil Rate Band”

New legislation has recently come into operation which will, in some cases, reduce the amount of tax due on the transmission of a person’s estate following their death. Currently, each person can leave up to £325,000 before tax is payable on their estate and this tax free allowance is known as the “nil-rate band”.  Now, an additional nil rate band known as the “residence nil-rate band” or RNRB can be applied to estates that meet the qualifying criteria, which are in basic terms the following:

  • The deceased died on or after 6th April 2017;
  • Their estate includes their home;
  • They have left their home to their children or other direct descendants.

There are detailed provisions to help determine what is classed as a person’s “home” and who is a “direct descendant” (essentially  grandchildren but not siblings, nephews, nieces etc.).  There are also provisions which allow for any unused RNRB to pass to a spouse or civil partner so that their RNRB is increased on their death. Furthermore, there is some protection for the RNRB if someone has downsized to another property or has had to go into a care home.

Where the estate qualifies and is under a total value of £2million, the full RNRB of £100,000 can be applied for the tax year 2017/18. This amount will increase over the next four years to £175,000 in 2020/21 and thereafter with reference to the consumer price index.  For estates over £2million, the amount of the RNRB that can be applied is reduced by £1 for every £2 over the threshold.

It’s important to note that leaving a property in some types of trust will not qualify as leaving it to your children. If you are concerned about the liability of your estate for inheritance tax or wish to make changes to your will to ensure the best outcome is achieved for your loved ones and need further advice please don’t hesitate to contact us.