With the two year anniversary of the introduction of the Residential Nil Rate Band (“RNRB”) fast approaching, along with a further increase in the allowance, we take another look at how the RNRB can help to reduce your Inheritance Tax liability.
Most people have a standard Inheritance Tax allowance of £325,000. For spouses and civil partners, this can double up to £650,000. If the value of your assets is below that threshold, then your estate shouldn’t have to pay Inheritance Tax on your death. Otherwise, the tax is charged at 40% on the part of your estate which is over the threshold.
The RNRB was introduced on 6 April 2017 and currently provides an additional allowance of up to £150,000 per person. It’s available when an individual leaves their home to their direct descendants, including children, grandchildren, stepchildren, foster children and the spouse or civil partner of those descendants. It won’t be available if siblings, nieces or nephews inherit the house. Again, those who are married or in a civil partnership can potentially benefit from two RNRBs, bringing their total allowance to £950,000 from 6 April 2019.
Mhairi Cage an Associate Solicitor in our Perth offices advises, “It’s easy to lose this valuable allowance without careful planning. Many people consider setting up a Trust to protect assets or vulnerable beneficiaries. Those who made their Wills prior to October 2007, before the standard Nil Rate Band could be transferred between spouses, may have included a Trust to try and make use of both allowances. If your house (or a share of it) passes into a Discretionary Trust however then your Executors will not be able to claim the RNRB – even if the only beneficiaries of the Trust are your direct descendants.”
If your estate is worth over £2m then the RNRB will be tapered away, ultimately being lost altogether if your net assets exceed £2.35m (or £2.6m in the case of married couples/civil partners). With careful planning however, there may be ways to maximise your Inheritance Tax allowances. People who sell their homes, either to downsize or to move into care, shouldn’t lose out on the RNRB. Remember however to keep good records of any sale transaction to make the claim process as easy as possible for your Executors on your death.
Mhairi adds, “It’s essential therefore to review your Wills on a regular basis and make sure that your beneficiaries won’t end up with an unnecessary tax bill. Miller Hendry’s experienced Private Client team are always on hand to offer advice about Inheritance Tax and protecting your hard-earned assets for the benefit of your loved ones.”