Residence nil-rate band

From April 2017 a new allowance, the residence nil-rate band (RNRB) will permit the future reduction of IHT due on the sale of the family home.  This new allowance will begin at £100,000 per individual, rising to £125,000 in 2018, £150,000 in 2019 and £175,000 in 2020.  Like the basic nil-rate band, it is transferable between spouses, which permits them potentially to pass on wealth up to £1m without incurring tax.

Who can inherit?

The new allowance is available only when estates are directly inherited by children, stepchildren, adopted children or grandchildren.  It will not apply if property is left, for example,  to nieces or nephews or brothers and sisters.

It will also not be available when property has been left in trust, which is why wills should be revisited urgently. 

How does the residency test work?

To claim the RNRB, you must leave a property in your estate and must have lived in it as your main residence at some point.  A property that has been a buy to let will not qualify. 

What if you downsize?

It is possible to protect the RNRB if you sell your family home to move to a smaller property, or into rented accommodation or a nursing home.  Essentially if you sold a property after July 8 2015, you should calculate what percentage of the RNRB could have been claimed had you died after April 2017 and still been living there.  This additional allowance can still be used to offset inheritance tax against other assets on death.

John BaxterComment