Residence Nil Rate Band

Residence Nil Rate Bands

The Residence Nil Rate Band (RNRB) was introduced in April 2017 following a 2015 election pledge by the Conservatives to raise the effective inheritance tax threshold for married couples and civil partners to £1,000,000.

However, the RNRB does come with conditions attached and so may not be available – or available in full – to everyone.

Residence Nil Rate Band Refresher

  • It is only applicable to transfers of residential property on death, subject to complex rules covering downsizing or moving into care.
  • It applies only to transfers made to your “lineal descendants”. Lineal descendants include children, grandchildren and any remoter descendants together with their spouses or civil partners, including their widow(er) or surviving civil partner who has not remarried or entered into a new civil partnership. It also includes a step, adopted or fostered child or a child to which the deceased was appointed as a guardian or a special guardian when the child is under 18.
  • Just like the standard nil rate band, any unused RNRB on first death has the potential to be transferable to a surviving spouse or civil partner, even if the first death occurred before 6 April 2017.
  • Where an estate is valued at more than £2m, the RNRB will be progressively reduced by £1 for every £2 that the value of the estate exceeds the threshold.
  • It is currently a maximum of £125,000, increasing by £25,000 in each of the next two tax years, so that it reaches £175,000 in 2020/21 (matching the expected timing of the next election when the 2015 manifesto was issued).

HMRC has yet to issue any data on the number of claims for RNRB but due to its complexity individuals completing inheritance tax (IHT) returns without professional advice may be missing out on this additional nil rate band.

Earlier this year, the Chancellor asked the Office of Tax Simplification (OTS) to explore simplification of the legal and administrative framework surrounding IHT. The OTS specifically mentioned the RNRB under the heading “Other Areas of Complexity” in its call for evidence. It could hardly have avoided doing so, given the withering criticism which the original RNRB legislation received from the head of the Treasury Select Committee.

Whether any reform will happen is a moot point. IHT produced a record £5,215m for the Exchequer in 2017/18, nearly 120% more than was raised in 2009/10, the last year that saw an increase in the standard nil rate band (NRB). Scrapping the RNRB and making a corresponding increase to the NRB looks an easy solution, but it would reduce the Treasury’s income. From the government’s viewpoint IHT is an efficient tax – it raises large sums for the Treasury.

If you have a question about Inheritance Tax planning, please do contact us on 01825 76 33 66 or send us an email.