Published On: Mon, Nov 11th, 2019

Inheritance Tax: Brits warned to review their will – could you shave £140k off IHT bill? | Personal Finance | Finance

The standard Inheritance Tax rate is 40 percent, and is usually paid on the value of one’s estate above the threshold (which is normally £325,000), and if everything above the threshold has not been left to a spouse, civil partner, a charity, or a community amateur sports club. Jonathan Scott, tax partner at Haines Watts Newcastle, has shared some insight into the Residence Nil Rate Band.

Mr Scott told “The Residence Nil Rate Band (RNRB) for Inheritance Tax (IHT) purposes was introduced back in April 2017.

“This new RNRB, which is now available in addition to the existing £325,000 IHT nil rate band, has been and continues to be introduced progressively.”

Mr Scott explained that this was £100,000 in 2017.18, £125,000 for 2018/19, £150,000 for 2019/20, and £175,000 for 2020/21.

“From 2021/22 onwards, it will be increased in line with the consumer prices index (CPI),” he added.

READ MORE: Have you overpaid Stamp Duty Land Tax? Some buyers could get refund – do you qualify?

How does the Residence Nil Rate Band work?

“The RNRB allows an individual to claim relief from IHT on a qualifying residential interest that is left to one or more direct descendants on death,” Mr Scott explained.

“The RNRB value is limited to the lower of the value of the property left to a direct descendant or the total RNRB available.

“The RNRB is first applied to the estate before the nil rate band. If the value of the property is less than the RNRB then the unused balance cannot be offset against other assets in the estate.”

Can the Residence Nil Rate Band be transferred?

Those who are married or in a civil partnership may be able to transfer the RNRB, in addition to the transferral of any unused threshold for Inheritance Tax one may have.

Mr Scott expanded: “Exactly like the nil rate band, the RNRB can be transferred between married couples and civil partners if it is not used in whole or part when the first spouse died.


“Many married couples and civil partners will have Inheritance Tax nil rate bands of £950,000 currently potentially available to them, rising to £1 million by 6 April 2020.

“The residence nil rate band alone could save their descendants Inheritance Tax of as much as £140,000 (£350,000 at 40 percent) in the 2020/21 tax year.”

What qualifies?

“The qualifying residential interest will be limited to one residential property of which you have owned or own a share in the property and have lived in some stage.

“Personal representatives will be able to nominate which residential property should qualify if there’s more than one in the estate.

“A property which was never a residence of the deceased, such as a buy-to-let property, will not qualify.”

What happens if a person downsizes?

“The RNRB is still available if you have chosen to downsize, give away or sell your residence,” Mr Scott said.

“The downsizing addition was brought in by the government which preserves the availability of the RNRB where the deceased has, on or after 8 July 2015, downsized to a less valuable residence or ceased to own their residence.

“Calculating the downsizing addition can be complicated, however in essence it is the amount of the RNRB that has been lost because your former residence is no longer in your estate.”

The RNRB taper

It may be that due to the value of a deceased person’s estate, the RNRB reduces, Mr Scott explained.

He said: “Where the value of a deceased’s estate exceeds £2 million the RNRB will be tapered away.

“For every £2 that the value of the net estate exceeds the £2m threshold, £1 of RNRB be lost.

“Given this, for deaths in the 2019/20 tax year, where the residence nil rate band will be £150,000, no RNRB will be available where the estate is valued at over £2.3 million (£2.6 million where the unused RNRB has passed to a surviving spouse or civil partner).

“Where the residence is left in the will to the trustees of a trust, the nature of the trust will determine whether the residence nil rate band will be available.

“Careful consideration and planning will be needed so that the RNRB is not lost by utilising trusts.”

Mr Scott also urged members of the public to seek advice as well as review their wills.

He said: “It is highly recommended that individuals take advice on their potential Inheritance Tax liability position.

“Wills should be reviewed to ensure they are Inheritance Tax efficient and to ensure they are not precluded from claiming the RNRB.

“Individuals should regularly review the value of their estate given that the residence nil rate band can be tapered to nil in certain circumstances.

“Lifetime gifts will continue to play a pivotal role in Inheritance Tax planning given that it is the value of the estate at death which will have a bearing on the RNRB available.”

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