On 6 April 2017 a new top up called the ‘residence nil rate band’ (RNRB) was introduced. This is in addition to the existing nil rate band of £325,000 per person.
The new RNRB allows you to give a proportion of value of your ‘residence’ to your ‘lineal descendants’ free of inheritance tax for deaths on or after 6 April 2017.
Proportion of value
From 6 April 2017 the RNRB is £100,000
From 6 April 2018 the RNRB increases to £125,000
From 6 April 2019 the RNRB increases to £150,000
From 6 April 2020 the RNRB increases to £175,000
For married couples this means the maximum RNRB available to their child or children would be £350,000 if the surviving spouse dies on or after 6 April 2020 and the first spouse who predeceased did not use up their own RNRB.
What does ‘residence’ mean?
A property that you now live in or have lived in at some point in the past. It does not have to be your main residence but you need to have lived there during your period of ownership.
If you have more than one residence the relief can only be claimed against one property.
What does ‘lineal descendants’ mean?
This includes children, grandchildren, step children, adopted children (of either the adoptive or natural parent) and foster children. It also includes their spouses or civil partners.
Estate over £2.2million
If your estate is worth over £2.2million there is no RNRB available. This is because the RNRB is tapered. For every £2 over £2million you own, £1 is tapered off.
If you sold your residence on or after 8 July 2015 to downsize, the RNRB may be applied against the proceeds of sale.
If you are considering updating your Will and would like to discuss how you can utilise the RNRB for the benefit of your children please call me on 01865 244661.