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IHT residential nil rate band

4th May 2017 by

In 2015 the Conservative party election manifesto promised to “take the family home out of tax by increasing the effective inheritance tax threshold for married couples and civil partners to £1 million”. This will be achieved by 2020 through the introduction of the residential nil rate band (RNRB), worth up to £175,000 per person.

When the residential band is combined with the frozen nil rate band of £325,000, an individual will have a total nil rate band of £500,000. The £1 million headline is achieved by doubling up the £500,000 total for a married couple or civil partners. However, the RNRB is set at £100,000 for deaths in 2017/18, and increases by £25,000 each year to £175,000 for deaths on and after 6 April 2020.

The RNRB is not as flexible as the main NRB, as it can only apply if value derived from the deceased’s home is inherited on death by a direct descendant of the deceased. Thus, the deceased must have a child, grandchild or great grandchild to pass the value on to, although step-children, foster children and the spouses of those individuals also count as direct descendants. The RNRB is not ring-fenced to the value of the home, it is applied to the entire estate on death.

Any unused the RNRB can be passed on to a spouse, just like the basic NRB. This carry forward of the RNRB also applies if the first spouse died before 6 April 2017, when the RNRB took effect. The first spouse to die did not have to own a property (see IHTM46040).

The RNRB is tapered away by £1 for every £2 of the estate value which exceeds £2 million. That gross value is calculated before any reductions for business property or agricultural property relief. A further complication is that the RNRB can apply if the deceased sold their home on or after 8 July 2015 to downsize or to move into a care home.

The rules are certainly not straightforward, so please ring our office if you need any further clarification.

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julie.burrows@dfcaccountancy.co.uk
Address:
2 Alexandra Gate
Ffordd Pengam
Cardiff, Wales, CF24 2SA

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Address: 2 Alexandra Gate, Ffordd Pengam, Cardiff, Wales, CF24 2SA
Email: julie.burrows@dfcaccountancy.co.uk