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Read more articles in: Blog, Linsey Graham, Private Client

Navigating the Residence Nil Rate Band – How it effects your Inheritance Tax bill

When it comes to Inheritance Tax (IHT) planning, understanding the nuances of the Residence Nil Rate Band (RNRB) can be a game-changer for homeowners in the UK.

Introduced in April 2017, the RNRB is an additional threshold that can reduce the IHT liability for individuals passing on their main residence to direct descendants.

Below, we delve into the intricacies of RNRB and guide how to ensure you can fully utilise this relief.

What is the Residence Nil Rate Band?

The RNRB is an additional allowance to the standard Nil Rate Band for individuals who leave their main home to their children or grandchildren, including stepchildren, adopted children, or foster children.

For the tax year 2023/2024, the RNRB stands at £175,000 per person, allowing for a potential combined threshold of £500,000 when added to the standard Nil Rate Band of £325,000.

For married couples and civil partners, where the other partner’s unused allowance is passed on posthumously, the total allowance can amount to a combined threshold of £1 million.

Qualifying for the RNRB

The application of the RNRB has several conditions:

  • The property in question must have been the deceased’s main residence at some point.
  • The beneficiaries must be direct descendants.
  • The estate must exceed the standard Nil Rate Band but not be over £2 million, after which the RNRB is tapered away.

It’s crucial to understand that the RNRB is not automatically applied and must be claimed on the estate tax return.

Therefore, proactive estate planning and consulting a solicitor is essential to ensure that you qualify for this relief.

Taper threshold and downsizing considerations

One of the technical aspects of the RNRB is the taper threshold.

Estates with a net value of more than £2 million will see the RNRB reduced by £1 for every £2 that the value exceeds this threshold.

It’s vital to consider this when planning your estate, particularly if your estate is around or above this value.

Additionally, the RNRB includes a downsizing provision.

If you have downsized to a less valuable home or ceased to own a home after 8 July 2015, you may still be able to claim the equivalent value of the RNRB, provided the smaller residence or assets of the equivalent value are left to direct descendants.

Complexities of estate planning with the RNRB

Estate planning with the RNRB can be complex, especially when considering the interaction with other reliefs such as Business Property Relief (BPR) or Agricultural Property Relief (APR).

For instance, if significant assets qualify for BPR or APR, it may reduce the value of the estate to a level where the RNRB can be utilised fully, offering further tax savings.

Conclusion

The RNRB is a valuable relief for those looking to pass on their main home to their descendants.

However, its application is subject to a variety of conditions and thresholds that can make navigating IHT planning a complex task.

Individuals should seek professional advice to navigate these rules effectively and ensure that they are making the most of the RNRB in the context of their overall estate planning.

Understanding the RNRB and its interaction with other aspects of your estate can help mitigate the IHT liability and secure your legacy for your loved ones.

With careful planning and consultation with an experienced solicitor, the RNRB can be a powerful tool in your arsenal.

For tailored advice on IHT and the RNRB, please contact one of our solicitors.

Linsey Graham

Senior Probate Executive – Wills, Probate & Older Client Services

I have worked for Mander Hadley for 17 years and specialise in Wills, trusts, tax, probate and the administration of estates.