What is the Residence Nil-Rate Band Inheritance Tax?
11 March 2022 by Jane Golding
It is certainly true that on death your Estate will be taxed 40% of the value of your Assets, exceeding any available tax free allowances. Sadly, the saying that the only things in life that are certain are death and taxes is certainly true.
Currently the main allowance is the nil-rate band which is currently set at £325,000 but which may be reduced by the value of any gifts you made up to 7 years prior to your death. There is also Residence Nil-Rate Band (RNRB) which is an additional tax free allowance from April 2017 and is available to be claimed in an estate where an individual leaves their main residence or the proceeds of the sale to their direct descendants. The current allowance under the Residence Nil-Rate Band is £175,000.
The most common factors raised are as follows:-
- What if my Estate is valued at more than £2m?
The RNRB is reduced incrementally for estates valued at more than £2m. The reduction is at the rate of £1 of allowance for every £2 of additional estate value. So for a single person the RNRB is lost entirely if the Estate was worth £2.35m or more at death for a married couple the relevant figure at which both the RNRB and TRNRB are lost.
- Can a RNRB be transferred to the Estate of a Spouse?
Unused RNRB allowances can be transferred to the Estate of a surviving spouse. The Allowance from the first death is known as the transferable residence nil-rate band.
- If I have to sell my home and move to a Care Home?
If you choose to downsize or even sell your home and move into a Care Home, your estate will not necessarily lose the RNRB. It may benefit from the downsizing relief.
- What if I own Two Homes?
The RNRB is available in relation to your main home. It must be a home you have lived in. A buy-to-let property would not count if it has never been your home.
- What if I am leaving my Estate as a Discretionary Trust?
The RNRB is available if the residence or a share in the residence is left directly to Children or Grandchildren. If your Will includes the provision for a discretionary trust, additional steps may need to be taken to allow the RNRB and TRNRB to be claimed.
- What about Step-Children or Foster Children?
Yes it does apply for Step-Children and Foster Children if you have no other qualifying beneficiaries. Your Estate will not qualify for the extra allowance.
- Ensuring your Will is up to date
There is no age limit applied to making a Will. Most people assume that this something that you do in your golden years. Sadly Unmarried couples are not entitled to inherit their partner’s estate on their death unless a Will is in place providing for this. Unmarried couples should therefore make a Will which accurately reflects their wishes to protect their partner.
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