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Danby Bloch: All you need to know about the residence nil rate band

Advisers need to be wary of inheritance tax implications of new rules

The residence nil rate band came into effect for deaths on or after 6 April. Advisers need to understand how this new set of rules works.

The RNRB can increase the inheritance tax nil rate band of anyone who dies on or after the introductory date and owns a home (or a share in one) that is part of their estate.

It only applies on death, so not on lifetime transfers or even gifts made within seven years of the donor’s death. HM Revenue & Customs also calls it the “additional threshold amount”.

This tax year, the RNRB is £100,000 per individual and it will rise by £25,000 increments to £175,000 in the tax year starting 6 April 2020. After that, the threshold will rise in line with the CPI.

The home must have been included in the deceased person’s estate and they have to have lived in the property at some stage before they died. If the deceased owned more than one home, the personal representatives can nominate which one should be used for the purposes of the RNRB.

The value of the home will be its open market value less any liabilities secured on it, such as a mortgage. If the net value of the property is less than the maximum RNRB at the time of the death, then it is the lower value that will apply.

Take this example: Mr. A dies in 2021 when the full £175,000 RNRB is available. He leaves his children a house worth £300,000 and other assets worth £190,000. The £300,000 house is worth more than the £175,000 RNRB, so his estate qualifies for £175,000 RNRB plus his NRB of £325,000: £400,000. So the total estate is covered by the aggregate nil rate bands. Any excess would be taxed at 40 per cent.

The RNRB will not apply unless the home is being left to the deceased person’s “direct descendants”. That means their child, grandchild or other descendants in direct line. It also includes the spouse or civil partner of one of these descendants, even if they are widowed.

“Child” for this purpose includes stepchild, adopted child, foster child or child where the deceased person was appointed as guardian or special guardian while the child was under 18. Nephews, nieces and suchlike lateral family members do not qualify.

The beneficiaries must inherit the property on the death of the deceased person. For example, the RNRB will not apply if the home is left in trust and contingent on the children reaching age 18.

Interest in possession

If the property is in trust after the death and stays in trust, it will only qualify for the RNRB if it is treated as part of the beneficiary’s estate for the purposes of IHT – essentially, if they have interest in possession; a right to use or occupy the property.

Just like the ordinary NRB, the deceased’s unused RNRB can be transferred to their surviving spouse/civil partner. This facility is available even if the deceased spouse/civil partner died before 6 April. In practice, executors will need to tell HMRC the details of the property and the amount of RNRB due, but they will only need to make a formal claim for the transfer of any unused RNRB from a deceased spouse/civil partner.

Not all estates will qualify. The RNRB is tapered away or gradually withdrawn by £1 for every £2 an estate is worth more than £2m. For example, if it is worth £2.1m, any RNRB will be reduced by 50 per cent. Transferred RNRB may also be subject to tapering. The combination of tapering and transferred RNRB is a bit complicated.

When ex-chancellor George Osborne first proposed the RNRB, many commentators expressed the fear it would encourage elderly people to remain living in houses that might be too big and generally unsuitable, just in order to benefit from it. So the Treasury and HMRC concocted some amazingly complicated rules to cover the situation where someone has downsized to either a less valuable property or no property at all.

These ingenious provisions apply to someone who downsized (or disposed of their home and had not replaced it) on or after 8 July 2015, assuming the previous home would have qualified. The personal representatives will need to claim within two years of the death. You should look up the rules if you might have a client in this situation.

The RNRB was a compromise to try and fulfil a Conservative undertaking to lift the IHT NRB to £1m by 2020. In the backwash of the financial crash of 2008/09, that idea seemed a little costly, so the Government came up with the RNRB on the basis it would just apply to people’s homes under £2m. That is why it is so complicated.

That said, it is hard to see why main residences should benefit from yet one more tax advantage. Presumably it is popular with the target sector of the population.

Danby Bloch is chairman at Helm Godfrey


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  1. “….so his estate qualifies for £175,000 RNRB plus his NRB of £325,000: £400,000″….

    £350,000 plus £175,000 used to equal £500,000 when I was a lad (although our family cave wasn’t worth that much…)

  2. Oh no!! 325 +175 =500 – mis type above!

  3. Compliance Compliance 15th May 2017 at 1:21 pm

    @ Blair Cann
    just beat me to it ! (although I noticed you put £350,000 instead of £325,000 ?)

  4. Also need to note that for the purpose of the tapering threshold of £2m, it doesn’t take into account any exemptions or reliefs such as BPR, but nor does it add back in any gifts made in the last 7 years……..e.g. death-bed gift made to reduce estate value below £2m……

  5. Just to be absolutely clear the £2m threshold applies to the net value of the ESTATE and NOT the PROPERTY.

    Come on DB and MM if we’re going to publish an article let’s make sure it’s right!!!

  6. Just a quick question Danby.
    Many estates will be left to ‘direct descendants’ but include other bequests away from the ‘direct’ line.
    Is there any complication here?
    I’m thinking of a situation where the total estate (including said residence) is perhaps divided up with certain percentages going to the various beneficiaries some of whom may well not be in ‘direct’ line.

  7. John, the R-NRB can only be used against a main residence that is left to one or more direct descendants. Any other assets will use up the standard NRB, so where possible the Will needs to be asset specific rather than £ or % of estate value.

  8. Thank you so much for that Andy.
    You have confirmed my suspicion there might be something to be wary of here.

  9. South London IFA 17th May 2017 at 6:37 pm

    I am struggling with the example of Mr A. in the article. I was under the impression the RNRB was applicable to the main residence only ie as the house is worth 300k this falls within the normal NRB and the estate would therefore be taxed at 40% above £325k – whereas this example seems to insinuate the RNRB can be used for other assets?? Anyone else confused?

    Also i agree with Andy, my understanding is tapering is relevant for estates valued at £2m plus, not houses.

    Can anyone clarify?

  10. South London IFA 18th May 2017 at 9:26 am

    For anyone else struggling with the detail, you might want to check this link, from which the above case study seems to have been “borrowed”!

  11. Quite right, South London IFA – the £2m limit at which tapering kicks in – applies to the estate as a whole, not just the house. Sorry about the unforced error.

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