The Residence Nil-Rate Band (RNRB)
This is an additional allowance in Inheritance Tax for married couples and civil partners and applies when they are leaving their property to “direct descendants”.
The maximum reliefs available (per person) are: 2017-18 +£100.000; 2018-19 +£125,000; 2019-20 +£150,000 and 2020-21 +£175.000
They will be reduced to the value of the property at the date of death if it is less. For example, in June 2020 Mr A dies and his property is worth £150,000 – then that is the value of the RNRB. However, if the value of his property is £250,000 then the relief would rise to £175,00 (maximum relief).
When valuing the property remember to deduct the value of any mortgage and also take in to consideration that if the deceased had more than one property, the Executors can elect which one is to be used for the purposes of the additional RNRB allowance.
EXAMPLE:- Mr C owns two terrace properties in Northampton, one is worth £80,000 and the other is worth £90,000 and both qualify as his residence. The Executors select the property worth £90,000 which maximises the amount of the available RNRB at £90,000.
EXAMPLE:- Mr B owns a farmhouse in Banbury worth £300,000. He realises that the value will limit the RNRB and so upsizes shortly before his death to a property worth £375,000. His Executors now have a full RNRB (£350,000 on his death) which is made up as £175,000 from his pre-deceased spouse and his own RNRB of £175,000
The Taper Restriction – There is a taper restriction applied to the above arrangement. It commences at £2m in 2020-21 and thereafter will increase with the Consumer Prices Index.
Please note that the fine detail of much of this legislation has yet to be announced but, as it becomes clearer, further posts will be made on this website.