The Residence Nil Rate Band (RNRB) is now £150,000 but the question is, have you organized your affairs to ensure you will benefit? Or do you have provisions in your Will that mean your estate will not have the additional £150,000 free of inheritance tax? Are you unwittingly arranging your affairs in such a way that your beneficiaries will have to pay an additional £60,000 in inheritance tax?
For any deaths after the 6th of April 2019, the Residence Nil Rate Band is now £150,000, an increase of £25,000 from the last tax year. With this increase, most estates will now get an additional £150,000 free of inheritance tax. This means that in addition to the normal nil rate band inheritance tax threshold of £325,000, most estates under £475,000 will not have an inheritance tax charge. But it is not that simple! There are some rules on the availability of RNRB that mean if you are not careful with your estate planning, you could lose the RNRB.
Some of the rules are that:
- The property must be the deceased’s main residence. There are some complicated rules around what qualifies as the main residence, especially where the property was sold before your death.
- The home must be inherited by direct descendants. For the purposes of the RNRB, direct descendants are:
- child, grandchild or other lineal descendants
- the husband, wife or civil partner of a lineal descendant (including the widow or widower or surviving civil partner)
- the term “child” includes: a step-child but note that it does not include your partner’s children. You must have been married to or in a civil partnership with the parent for the child to be a step-child, an adopted child, a foster child and a child that the deceased was a guardian or special guardian for when the child was under 18.
Some of the ways you could lose the threshold are by leaving your estate to people who do not qualify as lineal descendants or using certain types of trust that don’t qualify. It is imperative that you get estate planning advice from a qualified professional to make sure you don’t lose your RNRB especially if you want to use a trust in your will.
You need to get professional advice on how to work out the additional threshold, its effect on your inheritance tax liability and what action you need to take to make sure that your estate qualifies for the additional threshold. This could mean the difference between paying an additional £60,000 needlessly or not.
For deaths in the following tax years it will be:
- £125,000 in 2018 to 2019
- £150,000 in 2019 to 2020
- £175,000 in 2020 to 2021
For later years, the threshold will go up in line with inflation based on the Consumer Prices Index.
The additional threshold will gradually reduce, or taper away for an estate worth more than £2 million, even if a home is left to direct descendants. You may need to consider releasing equity (through gifting or a mortgage) from your home to ensure you don’t exceed the upper limit above which the allowance is reduced to nil.
Remember, you must get professional advice to be sure your estate qualifies, especially if you have already made a Will. If you have a Will, your Will is going to need a health check to make sure it will qualify especially if you have included a Nil Rate Band gift in your Will.
Get in touch now to book an appointment for a Will health Check or Estate Planning Review to make sure you don’t lose the RNRB.