28 June 2018
The Residence Nil Rate Band (RNRB) was brought into effect from 6 April 2017 at £100,000 per taxpayer. It is being incrementally increased throughout the three subsequent tax years to a total relief of £175,000 as at 6 April 2020. Up and down the country, property prices are on the rise and this relief could be even more welcome in years to come.
In addition to the RNRB there is a Transferable Residence Nil Rate Band (TRNRB), potentially enabling the second of a married couple to die to claim both their own allowance and their spouse’s. Despite RNRB and TRNRB only coming into effect on 6 April 2017 it can be possible to claim the TRNRB where the first of the couple passed away before April 17.
Since 6 April 2018 the RNRB is running at £125,000. Once RNRB and TRNRB have both been fully phased in they could potentially provide an extra £350,000 of relief against Inheritance Tax, translating into potential tax savings of £140,000 per married couple. In addition to the Nil Rate Band these two reliefs allow a married couple to provide their children with up to £1million ‘tax free’ on death, reflecting George Osborne’s manifesto promise to revert Inheritance Tax back to a point where it’s only paid by the rich and not by so called middle England.
Great, so what’s the problem?
Unlike the Nil Rate Band, the RNRB is means tested, only applicable on death (not on lifetime gifts) and relates only to the value of a home and only to bequests to lineal descendants.
This means the deceased must have lived in the property as their home at some time during their life (although it doesn’t have to be their main address), at least some of the estate must pass to children or other direct descendants, and the relief is tapered away where the value of the estate exceeds £2million.
This tapering away of relief is particularly problematic for couples with combined assets between c£2m and c£5m and to business owners or property owners including farmers. Without planning it is easy for these individuals to fail to benefit from this valuable relief in circumstances where structuring their affairs differently may have secured the relief. The relief is also one of the rare tax reliefs which can be positively planned for both on the deathbed and even after death in certain circumstances.
Licenced by the ICAEW to carry out non contentious probate work in England and Wales, UHY Hacker Young’s Letchworth office have specialists capable of assisting with all aspects of tax planning, trust and estate administration and probate work. Should you like to discuss how this relief may affect your circumstances, please get in touch by filling in our contact form here.