Residence Nil Rate Band allowance increase: are you up-to-speed?

On 6 April 2020, the Residence Nil Rate Band allowance increased to its maximum limit of £175,000.

The Residence Nil Rate Band (RNRB) was first introduced in April 2017 to provide individuals with an additional inheritance tax allowance, when their estates exceeded the basic inheritance tax threshold of £325,000 and met certain qualifying conditions. The RNRB has been gradually brought in on a tapered scale over the last four years, and increased on 6 April from £150,000 to £175,000 per person.

The RNRB is available to individuals whose property, owned and used as their residence, (or the equivalent monetary value) is inherited by their direct descendants on their death either under the terms of their will, or under the laws of intestacy.

For the purposes of the residence nil rate band, the definition of “direct descendants” is wide-reaching and includes not only lineal descendants but also step children, adopted children, foster children, children whom they are appointed as guardians or special guardians for, as well as the husbands/ wives/civil partners of lineal descendants, thus being significant in reducing the chargeable value of many individuals’ estates for inheritance tax purposes.

The qualifying conditions for the RNRB are complex however, and easy to miss. In particular, individuals who leave their estates to their children/grandchildren conditional upon them reaching a certain age, or whose homes or a share of their home are held in certain trust arrangements or in the name of a company, or whose estates exceed the value of £2million could be prevented from fully maximising the inheritance tax allowances available to them.

If you are unsure as to whether your estate will qualify for the RNRB, whether the current provisions of your will meet the RNRB’s qualifying conditions, or if you have yet to make a will to ensure your assets pass to your chosen beneficiaries, please do contact us.

Laura Stone is a solicitor in our wills, trusts & probate team. She supports and assists a wide range of clients, including elderly and vulnerable clients, high net worth individuals, executors and attorneys, families and legacy officers.