Families must make full use of the Residence Nil Rate Band

Posted on Tuesday April 28, 2020

Jeffrey Cohen

By Jeffrey Cohen, Senior Associate in the Private Client Team at Mackrell.Solicitors

In the Budget of 2015 the Chancellor at that time, George Osborne, announced that he was introducing an inheritance tax threshold of £1 million for a couple.

That was not quite the whole truth. The new tax threshold, which is called the Residence Nil Rate Band (RNRB) was, in fact, only brought in to effect in 2017 and then in stages.

It has, however, as of 6 April 2020 now reached the £1 million threshold promised by the Government. This is an opportune moment to review what the tax threshold is and also to then see if that applies to you, your Will and estate.

The RNRB applies, subject to certain strict restrictions. It only applies if you had a property which you had at some time used as a dwelling and that you passed on either to a surviving spouse or directly to your lineal descendants.

Descendants were widely defined to include not only children, grandchildren and so on but also adopted children and step-children.

It does, of course, mean that you cannot pass the property to a trust on behalf of the children but it must go directly to the children.

Another condition was that your estate must be valued at no more than £2 million. If your estate is more than £2 million then for every £2 above that amount you would lose £1 of the relief.

The law also allowed you to downsize or dispose of the property. For example, if a person sold their property or gifted it away and moved into a nursing home then you could still claim the RNRB, provided that it was a gift that it was gifted to a spouse or direct descendants and if you had downsized that the proceeds of the sale were then gifted to the children/surviving spouse as the case may be.

The Government introduced RNRB at the initial rate of £125,000 and each year it has increased by a further £25,000.

As of April 2020, the RNRB has reached the maximum amount, which the Government announced when it first introduced this in the Budget of 2015 of £175,000. This means that a husband and wife together would have a tax threshold of £350,000.

They have, in addition, the ordinary tax threshold (nil rate band) between them of a further £650,000, thus in a married couple’s estate they will have a joint tax threshold of £1 million, provided of course they fulfil the above conditions.

It is therefore vital that a person should check the current provisions of their Will to ensure that you will get the full RNRB.

This may also involve some restructuring in respect of your assets. Otherwise, one will risk losing this valuable additional tax benefit.

Mackrell.Solicitors specialise in advice on Wills and all aspects of inheritance tax planning and would be happy to advise you with regard to this. Please contact Jeffrey Cohen or Natalie Payne to discuss your Will and inheritance tax.