Residence Nil Rate Band
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Residence Nil Rate Band
Ian Winterbotham talks us through the residence nil band rate and what it means for estate planning.
What is the Residence Nil Rate Band?
When you are drawing up your Will, you need to be aware of the Residence Nil Rate Band (RNRB). It is an allowance that allows individuals, and couples, extra relief on the amount of Inheritance Tax (IHT) that might be applied to their estate.
At Will Power, we can advise you on the RNRB when you are making, or reviewing, your Will.
How the Residence Nil Rate Band Works
The RNRB was introduced in 2017 as an enhancement to the amount you can pass on to your beneficiaries before IHT is applied.
Every person who makes a will automatically qualifies for the nil rate band (NRB), which currently covers the first £325,000 of an individual’s estate.
That means, if you are a couple, you can leave up to £650,000 without having to pay IHT.
However, if you qualify for the RNRB, it applies an extra allowance – currently £175,000 each – to your estate before IHT is charged.
With the rate of IHT now at 40 per cent, that is an extra £70,000 that passes to your loved ones.
Applying the Residence Nil Rate Band
You are eligible for the RNRB if you own your property and leave it to your direct descendants – children or stepchildren, or their partners. You must have lived in the property concerned to qualify.
If you are single, the RNRB is applied when you die. If you are a couple, and your intention is to leave your property to the surviving partner, those assets pass directly to them without IHT being applied.
When the second partner dies, both RNRB allowances can be claimed on the estate that passes to your direct descendants.
That means that, as well as the total of £650,000 that can be claimed on the nil rate band, another £350,000 is added. So a married couple who have both died will have a total of £1million allowance before IHT is payable.
Homes Worth Less Than the RNRB
House prices have risen steadily in recent decades, but it may be that your home is worth less than the total value of the RNRB for a single or married person.
The home inherited by direct descendants does not have to be worth more than the basic or transferred basic threshold, to get the residence nil rate band.
Speak To an Expert
Your Next Step
It is essential that you understand the concept and workings of the RNRB so that you can ensure your beneficiaries do not pay too much IHT.
If you engage the expertise of Will Power, we will explain precisely what impact this allowance will have on your estate.
We can also discuss your personal situation. You may have put your property into a Trust, or planned to pass your assets directly to your grandchildren – what impact would that have on the level of IHT due on your estate?
You should have your Will reviewed regularly, so that the impact of any changes to the law or IHT thresholds can be minimised.
By dealing with Will Power, you can ensure your peace of mind – and that of your partner and your direct descendants. Please contact us to arrange your initial no-obligation discussion.