The residence nil rate band

The residence nil rate band was introduced in April 2017 and is intended to mitigate the inheritance tax impact of an individual passing their family home on death. In this blog post, our Grimsby accountants raise awareness of the various pitfalls which can result in the loss of a portion or all of the residence nil rate band.

What is the issue?

The RNRB was initially set at £100,000 for the 2017/18 tax year but will increase by £25,000 each year until 2020/21 when it will reach £175,000.  As the residence nil rate band is in addition to the basic nil rate band (currently £325,000 frozen till April 2021) the initial headline appeared to be “Half a Million inheritance tax nil rate band for everyone by 2020/21!”, however as with most tax reliefs the devil is in the detail and entitlement to the RNRB should not be taken for granted.

How does the residence nil rate band affect me?

It is important to be aware of the various pitfalls which can result in the loss of a portion or all of the residence nil rate band and these include the following:

• The RNRB is limited to the value of the family home included in a person’s estate.  If the family home is worth less than the RNRB, the excess cannot be set against other assets in the estate.
• Unlike the basic nil rate band, the residence nil rate band does not apply to lifetime gifts.
• There is a tapered withdrawal of the RNRB where a person’s estate exceeds £2 million.
• The family home must be closely inherited which includes being passed to a lineal descendant or spouse but does not include a niece, nephew or friend for example.  The rules become further complicated where the family home is left to a trust.

It is also important to be aware of situations when the residence nil rate band entitlement can be higher than perhaps first thought. This includes the special rules that apply where a person downsizes or ceases to own their home, or where there was unused RNRB on the death of a spouse.

Residence nil rate band from local Grimsby accountants

Here at Haines Watts Grimsby, we can help you understand how the residence nil rate band affects you and advise you on any steps that need to be taken to ensure that possible opportunities are not wasted.  This can be done as part of a comprehensive estate review to help you take full advantage of all reliefs available and minimise your inheritance tax exposure. Call 01472 355215 or email grimsby@hwca.com to speak to one of our grimsby accountants to get the business help and tax advice you need today.