Residential Nil Rate Band: How Will This Affect Your Property And Inheritance Tax?

Year Published: 2017

A new Residential Nil Rate Band (RNRB) has been introduced and parents could now save up to £140,000 on inheritance tax when their family home passes to their children on death.

What changes can we expect from the new Residential Nil Rate Band?

Helen Kelly, Partner at SAS Daniels

Helen Kelly, Partner

Before April 2017, when the RNRB was introduced, what happened was that every person received a Nil Rate Band of £325,000 (this is the value of an estate that is not subject to inheritance tax). Now that the new RNRB has been introduced each parent will have a nil rate band of £325,000 plus a RNRB of up to £175,000. A total of, potentially, £500,000 for each parent which is not subject to inheritance tax on death.

There are vital points which need to be remembered. The new RNRB will only apply if a residential property is left to direct descendants, e.g. children and grandchildren. This does include step, adopted and foster children. The other point to note is that the RNRB will be phased in over four years starting at £100,000 and increasing by £25,000 each tax year. As a result the full £175,000 won’t be available until 2020.

If you have a large estate which exceeds the value of £2 million then you may not see any benefit from the new RNRB. This is because the RNRB is tapered by £1 for every £2 over. However, this value will increase slightly once the full £175,000 allowance is gradually phased in. By 2021 this figure will raise to £2.3 million.

How can you make the most of your inheritance tax relief?

In order to maximise your inheritance tax relief there are a number of planning opportunities to consider. Parents could equalise their estate to reduce their individual value and split their assets over both of their estates. They could also restructure any debts such as mortgages and possibly consider gifting assets prior to death.

Whilst the RNRB can potentially save £140,000 in inheritance tax there are plenty of traps for the unwary and specialist advice should always be taken.

For more information on the new Residential Nil Rate Band, please contact Helen Kelly in our Personal Law team on 0161 475 7685.

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