The IHT Residence Nil Rate Band (RNRB)

The IHT Residence Nil Rate Band (RNRB) was introduced in April 2017. It is in addition to an individual’s own nil rate band of £325,000, and conditional on the main residence being passed down to direct descendants (e.g. children, grandchildren). 

By 2020/21 families could escape IHT on up to £1M of their wealth.
Each parent will have a nil-rate band of £325,000 plus a RNRB of up to £175,000.

How much will it be?The full £175,000 allowance will be available in April 2020. The RNRB will start at £100,000 and will increase by £25,000 each tax year until 2020.Of course these are the maximum amounts. The available allowance will be reduced if the value of the property is less than this.For example, a father dies in 2020/21 and his will gifts his 50% share in the family home to his children. If this share is valued at £140,000, the extra £35,000 of nil rate band will go unused (but may be transferred to his widow).

When the RNRB can be transferred? The Residence Nil Rate Band will be transferable between spouses and civil partners on death, much like the standard nil rate band. It is the unused percentage of the RNRB from the estate of the first to die which can be claimed on the second death.This is irrespective of when the first death occurred or whether they owned residential property at their death. There will always be an additional 100% RNRB unless the first spouse’s estate was greater than £2M.

Tapering the residence nil rate band Clients with large estates may not see any benefit from the extra nil rate band. The residence nil rate band will be reduced by £1 for every £2 that the deceased’s net estate exceeds £2M.This will mean that on its introduction there will be no RNRB available if the deceased holds assets of more than £2.2M. This will rise to assets of £2.35M in 2021/22 when the full £175K allowance kicks in.Reliefs such as Business Property Relief and Agricultural Property Relief are ignored when calculating the value of the estate.

Who can benefit?The RNRB is only available where the main residence passes to children (including adopted, foster or step children) or linear descendants on death.However, the rules have been extended to accommodate situations where the family home passes into the joint names of the deceased’s child and their spouse.  

What if the family home passes into trust? The residence nil rate band may be lost where, for example, the property is placed into a discretionary will trust for the benefit of the children or grandchildren.However, some trusts for the benefit of children and grandchildren will not result in a loss of the allowance. If the trust gives a child or grandchild an absolute interest or interest in possession in the home the RNRB can still be claimed. Other trusts such as Bereaved Minor Trusts, 18 – 25 Trusts and Disabled Persons’ Trusts will also retain the additional nil rate band.

What about downsizing? The family home doesn’t need to be owned at death to qualify. This is of help to those who may have downsized or sold their property to move into residential care or a relative’s home.The RNRB will still be available provided that:The property disposed of was owned by the individual and it would have qualified for the RNRB had the individual retained it;The replacement property and/or assets form part of the estate and pass to descendants.Downsizing or the disposal of the property has to take place after 8 July 2015. But there is no time limit on the period between the disposal and when death occurs.

Multiple Residences Only one residential property will qualify. It will be down to the personal representatives to nominate which residential property should qualify if there is more than one in the estate.A property which was never a residence of the deceased, such as buy-to-lets, cannot be nominated.

Basic IHT threshold frozenWhile you may be getting some additional nil rate band to set against the family home, the basic IHT nil rate band will be frozen at £325,000 until the end of 2020/21 tax year.When combined with the full RNRB of £175,000 in 2020/21 this would provide a married couple with the promised £1M nil rate band.

Joint tenants and the trap for large estates Some clients may miss out on the additional nil rate band by not ensuring that their estates are shared in the most efficient way.Many clients will hold the family home as joint tenants. On the first death this means the house passes to the surviving owner with no IHT because of the spouse exemption. The RNRB is not used on the first death, with the surviving spouse inheriting the full unused allowance. But if the combined estate on the second death is greater than £2M then both RNRBs could be lost due to tapering.Switching property ownership into tenants in common will allow each spouse to control how the property passes on death, and potentially preserve their entitlements to the RNRB by keeping each partner’s assets below £2M. On the first death, the deceased could use their RNRB by leaving part of their share in the family home to their children. In turn, this would reduce the value of the survivor’s net estate. And this could be further reduced if the deceased also gives more away up to their ordinary nil rate band of £325,000. So, in total, the survivor’s estate could be reduced by up to £500,000.

Reviewing wills It makes sense to keep wills constantly under review to cater for changing circumstances. And that also includes ensuring legislative change does not adversely impact upon what the deceased would have wanted.Missing out on the RNRB, by passing the family home into a discretionary trust for example, could see their executors paying as much as an extra £140,000 in inheritance tax.A deed of variation may come to the rescue for some, where property is passed to an individual. But it can be near impossible to vary a transfer into a discretionary trust which has a wide class of beneficiaries as agreement will be needed from all possible beneficiaries.


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Woody Snapper

Woody works with individuals and business' looking for corporate finance, high net worth mortgages, complex loans, bridging loans and development finance.

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Tel: 07922 413586