What is the residence nil rate band?
Our adviser Lisa Julian talks us through the changes that are taking place with Inheritance Tax.
The Residence Nil Rate Band is an additional allowance on Inheritance Tax which means that by 2020-2021 couples could escape Inheritance Tax (IHT) on amounts up to £1m of their wealth.
Under the current rules, IHT is charged on estates worth more than £325,000 (know as the nil rate band). That rises to £650,000 for couples as the rate is transferable between the two people.
However, as from April 2017, when someone dies their estate will, in addition to the standard nil rate band, be entitled to the residence nil rate band (RNRB) if they own a home, or a share of one, that is included in their estate and is left to ‘direct descendants’.
This includes children, grandchildren, stepchildren, adopted children and foster children. Not nephews, nieces or siblings. The value of the estate must be no more than £2m.
How much is the RNRB?
Over the next few years the RNRB will increase annually as follows:
April 2017 £100,000
April 2018 £125,000
April 2019 £150,000
April 2020 £175,000
Any unused tax can be transferred between spouses and civil partners on death.
This can also be done if the first person in a couple died before 6 April 2017.
So by 2020-21 couples could escape IHT on up to £1m of their wealth
£325,000 (original nil rate band) + £175,000 = £500,000 x 2 people in the couple.
What do I need to do now?
Make sure you take a look at your Will and see if any amendments would enable you to maximise the RNRB for your estate, in particular if you have left any of your estate to siblings.
Speak to us about your options and we can advise you on any changes you need to make.