What is the residence nil rate band? Private Wealth

The residence nil rate band (RNRB) is an additional inheritance tax allowance on top of the existing normal nil rate band (NRB) which may be deducted from the value of a deceased person’s estate before inheritance tax is charged at 40 per cent.

Basic qualifying conditions

The basic rule is that a direct descendant of the deceased person must inherit a residential property of the deceased. Often, although not exclusively, this will mean that the family home passes to children or step children on the death of a surviving parent.

Amount of allowance

The existing NRB is £325,000 and has been for some time.

The additional RNRB will be gradually introduced over the next four years as follows for a death in the stated year:

£100,000 in 2017/2018

£125,000 in 2018/2019

£150,000 in 2019/2020

£175,000 in 2020/2021

So in 2020/2021 someone who passes away and leaves a residential property to their children would benefit from the existing £325,000 NRB plus £175,000 RNRB which means the first £500,000 of their estate would be free of inheritance tax (assuming the deceased had not used up any of their normal NRB in their lifetime by making gifts).

Transferrable allowance

Where the first death is that of a married or civil partner and they pass their estate to their surviving partner the NRB and new RNRB may be transferred to and used by the surviving partner on their death.

Restrictions on claiming the new RNRB allowance

If the estate of the deceased where a claim for the RNRB is being considered exceeds £2m then the new RNRB is reduced by £1 for every £2 the estate exceeds £2m. In terms of the new relief being phased in from 2017/2018 through to 2020/2021 the new RNRB will disappear if the deceased’s estate exceeds the following sum in the relevant year;

£2.2m 2017/2018

£2.25m 2018/2019

£2.3m 2019/2010

£2.35m 2020/2021

Our Private Wealth Specialists

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