What is the Inheritance Tax residence nil rate band?
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The Inheritance Tax residence nil-rate band (RNRB) came into effect on 6 April 2017. The RNRB is a transferable allowance for married couples and civil partners (per person) when their main residence is passed down to a direct descendent such as children or grandchildren after their death. The RNRB effectively increases your existing £325,000 inheritance tax nil-rate band.
The RNRB is being introduced in stages, the threshold is currently £150,000 and will increase to £175,000 in 2020-21. After this, the limit is set to increase in line with the Consumer Prices Index. Any unused portion of the RNRB can be transferred to a surviving spouse or partner in a similar way to the existing Inheritance Tax residence nil rate band NRB.
The allowance is available to the deceased person’s children or grandchildren. Taken together with the current Inheritance Tax limit of £325,000 this means that by 2020-21, parents will be able to pass on property worth up to £1 million free of Inheritance Tax to their direct descendants.
There is a tapering of the RNRB for estates worth more than £2 million even where the family home is left to direct descendants. The additional threshold will be reduced by £1 for every £2 that the estate is worth more than the £2 million taper threshold. This can result in the full amount of the RNRB being tapered away.
If your estate exceeds these extended nil-rate band limits, you should consider a formal Inheritance Tax planning exercise. There are ways to mitigate liabilities and we can advise.