The Residence Nil-Rate Band (RNRB) went up in April 2019, and will do so again in April 2020. This could give a valuable boost to your inheritance tax planning
Inheritance tax (IHT) may be Britain’s most hated tax, but there are plenty of things you can do to mitigate it. One of these may be in front of your very eyes: your home.
Introduced in 2017, the RNRB can be claimed on top of the £325,000 nil-rate band for IHT if you leave an interest in a home. Like the nil-rate band, it can be transferred between spouses and civil partners, meaning that couples may be able to leave an estate of up to £1 million free of IHT from April 2020.
That’s good news, so why is the RNRB not better loved? Primarily because it comes laden with complications:
- it applies on transfers to “direct descendants” only (not, for example, to siblings, nephews or nieces)
- it tapers downwards for estates worth £2 million or more
- there are intricate rules around which residences qualify, what happens with houses left into trust, and the interaction with other IHT allowances and reliefs.
This all adds up to the fact that the RNRB is a valuable IHT planning tool, with the rises in April 2019 and April 2020 making it even more so. But, it’s an allowance to be used with caution and expert advice. Otherwise, your IHT planning could go awry.
Value of the RNRB
- April 2018-April 2019 £125,000
- April 2019-April 2020 £150,000
- April 2020-April 2021 £175,000
- April 2021 – rises in line with Consumer Price Index
(Max RNRB available per individual, according to date of death)
Case study:
Tax savings through the RNRB
Let’s say Neil dies in the summer of 2020, leaving a house worth £300,000, and other assets worth £200,000 to his children, Wendy and George. The IHT saved through the RNRB could be worth £70,000, as we show below.
With an estate worth £500,000, Neil’s children would benefit from the basic Nil Rate Band (NRB) of £325,000 and the RNRB of £175,000 (in the 2020-2021 tax year), leaving nothing to pay IHT on.
In contrast, without the RNRB, £175,000 of the estate value would pay IHT. At 40%, this would leave an IHT bill of £70,000.
However, to maximise the benefit of the RNRB requires careful planning beforehand – Neil and his family should seek good advice and take nothing for granted.
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