Residential Nil-Rate Band

6 April 2017 saw big changes to the way in which inheritance tax is applied to a residential property forming part of a deceased person’s estate.  The government introduced a new residential nil rate band (RNRB) which starts at £100,000.00 for the 2017/18 tax year and will increase by £25,000.00 each tax year until 2020/21 when it will have reached £175,000.00.

It applies to reduce the value of a deceased’s residence where it passes on death to:

  • The deceased’s children, grand-children, step-children or foster children;
  • The current spouse or civil partner of the deceased’s children, grand-children, step-children or foster children;
  • The widow, widower or surviving civil partner of a child, grand-child, step-child or foster child who has predeceased the deceased.

For example, if a person were to die in the tax year 2017/18 and they leave a residential property worth £300,000.00 to any of the above persons, the value of that property for probate purposes is reduced to £200,000.00.

The RNRB will be tapered for estates valued at £2 million or more, meaning that the RNRB will reduce by £1 for every £2 over the £2 million threshold. 

The RNRB is completely separate from the existing tax free allowance (£325,000.00) and is fully transferable to a surviving spouse or civil partner (‘partner’).  What this means is that if a spouse or civil partner dies leaving everything to their partner and that surviving partner dies after 6 April 2021, then they potentially have a tax free allowance of £1 million (two lots of £325,000.00 and two amounts of £175,000.00).

For professional advice on making a Will and to deal with your assets whatever they may be, please contact Graeme Taylor of Gelbergs LLP by email (Graeme@gelbergs.co.uk) or phone (020 7226 0570). 

 

Published 21 April 2017.