The Residence Nil Rate Band (‘RNRB’) will be fully in force from 6th April 2020, when it will increase to £175,000. When added to the ‘ordinary’ Nil Rate Band (‘NRB’) of £325,000, each individual will be able to leave up to £500,000 inheritance tax free. Any proportion of the NRB and RNRB which is unused when the first spouse or civil partner dies can be transferred and set against the survivor’s Estate so that a married couple or civil partners can pass up to £1 million inheritance tax free on second death.
However, the requirements of the RNRB are complex, and you will need to plan carefully to ensure that the RNRB can be claimed in full following your death.
To qualify for the RNRB, you must leave your residence (or the sale proceeds if you have sold your property, for example to go into residential care) ‘directly’ to ‘lineal descendants’, including children, grandchildren and their spouses or civil partners, step-children and foster children. If your residence passes to lineal descendants outright, it will qualify for the RNRB.
If, however, the property share passes into Trust it may not be classed as passing ‘directly’ to them, and so may not qualify for the RNRB. Whether or not the property passing into Trust will qualify for the RNRB will depend on the type of Trust.
The RNRB is tapered for Estates worth over £2 million and you may need to consider planning during your lifetime to prevent the taper threshold being exceeded.
Whilst steps can be taken after someone has died to rearrange how the Estate passes to enable the RNRB to be claimed, you can save inheritance tax, time and unwanted hassle if you ensure that your Will is drafted in a way which ensures that the RNRB will be available to be claimed when the time comes.
If you wish to discuss inheritance tax planning, or ensure that your Will is drafted in a way which will enable the RNRB to be claimed, please contact Hannah Borner on 01582 765111 or email firstname.lastname@example.org.