Inheritance Tax – Residence Nil Rate Band – not as simple as it seems…


5th September, 2017

Inheritance Tax (IHT) – once a tax on the privileged few – is now affecting more and more families across the UK. In fact it is predicted that, by 2019, 10% of all Estates in the UK will be subject to IHT.

There are two main reasons for this:

  • Increased property prices;
  • The Nil Rate Band (NRB) has been frozen at £325,000 since 2009

So, when David Cameron announced in 2015 that ‘Principal Private Residences’  (the family home in plain English) valued at up to £1million would be exempt from IHT,  this was seen to be a great step in the right direction. As always, the Devil is in the detail, and this new ‘tax break’ is certainly not as simple as many first thought.

James Yeoell
Financial Consultant, Butler Toll

As of 6th April 2017, an additional allowance known as the ‘Residence Nil Rate Band’ (RNRB) means that the first £100,000 of a home’s value is exempt from IHT. The standard £325,000 can then be applied to the balance of the value of property and assets in the estate. In order to qualify for the RNRB, the property in question must be passed to a direct descendant, which would include children, grandchildren or stepchildren.

The RNRB will be increased by £25,000 each year until it reaches £175,000 in 2020/21. It is also possible for a surviving spouse to inherit any unused RNRB from their partner. This may not apply in respect of unmarried partners.

For Estates valued above £2million, the RNRB will be reduced at a rate of £1 for every £2 that the estate exceeds £2million.

What does this all mean? Well, the introduction of the RNRB is certainly a positive thing and, provided everyone plans accordingly, many Estates in the UK will benefit. Ensuring your Will is up to date is imperative to ensure that you benefit from this additional allowance. Lifetime planning, particularly if your Estate is at or above the £2million threshold, is key.

Should you have any queries at all, please feel free to contact James Yeoell;