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The Residence Nil Rate Band (RNRB) enables certain individuals to leave more of their estate to their direct descendants, by increasing the amount of the estate that is taxed at 0% from up to £325,000 to up to £500,000
Rules that allow these allowances , if unused when the first of a married couple or civil partnership dies, to be transferred to the survivor’s estate and used on their death , mean that it is now possible for a couple to leave £1,000,000 tax free on their death.
It is important to understand the rules regarding RNRB.
So who qualifies for this relief?
Relief for individuals must meet the following criteria:
- The person died on or after 6th April 2017.
- The value of the estate is not worth more than £2million.
- The person owned the home, or a share of the home, that is included in the estate.
It is vital the home is registered jointly with your spouse or civil partner otherwise there will be no transferable RNRB.
- The person occupied the property at some stage as their main residence.
- The beneficiaries of the home, are direct descendants of the deceased.
There are two means in which you can hold property jointly. Firstly as joint tenants where you and your spouse both own the whole of the property. When one of you dies, their share would automatically pass to the surviving party; it cannot be passed to anyone else in their Will. IHT is not applicable upon the first death due to the spouse exemption rule. The unused RNRB of £500,000 can then be transferred to the surviving spouse with a total of £1million RNRB available upon death. Secondly as tenants in common where parties own separate shares of the property which can be left to who they wish in their Will, the RNRB could be available upon both the first and second deaths, as long as the criteria of lineal descendants are met.
The family home does not need to be owned at death to qualify, The RNRB could still apply if you have downsized or moved into residential care or a relative’s home and have disposed of your property after 8th July 2015, and would apply as if the property would have qualified when you did own it. There is no time limit on the period between the disposal and when death occurs.
You should note only one residential property will qualify. It will be down to the personal representatives to nominate which residential property should qualify if there is more than one in the estate.
You should be aware that there are exceptions to when the RNRB can apply such as if you are using a Discretionary Will Trust, or you leave your estate to descendants subject to them reaching a certain age but at the date of death the age has not been met then the Trust created eliminates the entitlement for the RNRB relief, or if your estate is over the value of £2.35million. Reliefs such as, Business Property Relief and Agricultural Property Relief are ignored when calculating the value of the estate.
Estate planning is based on individual personal circumstances and obtaining advice early is necessary when making arrangements for the future to ensure that you receive the reliefs available to you, and reduce the possibility of exceeding the RNRB threshold and IHT liability. It is recommend that you keep your Wills and estate planning under continual evaluation, not just for changes in your family circumstances, but also in keeping with changes in the law.
If you require estate planning advice then please contact Jonathan Dorman from our private client department.