Main Residence Nil Rate Band

Source: HM Revenue & Customs | | 14/06/2017

The impact of Inheritance Tax has been reduced recently for families that own their own home. HMRC has introduced a new relief, the Inheritance Tax main residence nil-rate band (RNRB), which came into effect on 6 April 2017.

The RNRB is a transferable allowance, that is available to the estates of both parties in a marriage or civil partnership, when their main residence is passed down to a direct descendent: for example, their children or grandchildren. The RNRB is available in addition to the existing £325,000 Inheritance Tax nil-rate band (NRB) threshold.

The RNRB is being introduced in stages:

  • Initially, £100,000 in 2017-18
  • £125,000 in 2018-19
  • £150,000 in 2019-20, and
  • £175,000 in 2020-21.

Any unused portion of the RNRB can be transferred to a surviving spouse or partner in a similar way to the existing NRB. The combined benefit of these two reliefs, means that by 2020-21, parents will be able to pass on their private residence - to a value of up to £1 million - free of Inheritance Tax to their direct descendants.

From 2021/22 onwards the RNRB is due to increase annually in line with the Consumer Prices Index (CPI).  However, there will be a tapered withdrawal of the RNRB for estates with a net value of more than £2m. This will be at a withdrawal rate of £1 for every £2 over this threshold.

Technical notes: to qualify for the RNRB:

  • The deceased’s estate must include a residential property or qualify under the downsizing rules.  
  • The RNRB is transferable where the second spouse or civil partner dies after 5 April 2017, irrespective of when the first partner died.
  • If there is more than one residential property, the personal representatives of the deceased person can nominate the property to qualify for the relief.
  • The property must have been a residence of the deceased. A buy-to-let property would not qualify for the relief.
  • The property must be left to a direct descendant (including a step-child, adopted child or foster child) or other lineal descendant of the deceased. 

Planning advice:

Readers who have not reviewed their estate planning since this new relief was announced, should consider their options. Estate planning, to mitigate the effects of Inheritance Tax, is a moveable feast. To stay ahead of the planning curve, it will benefit couples with a significant investment in their home to reconsider their Wills and any new opportunities to reduce a possible 40% estate tax. We can help. Please call if you would like more information.



 

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