Introduced by the Government in 2017, the Residence Nil Rate Band (RNRB) is an allowance to reduce inheritance benefits for families passing on their main property to a direct descendent. Since its introduction, millions of families around the UK have benefitted from its ability to minimise Inheritance Tax (IHT) bills.
Will the Residence Nil Rate Band mean paying less IHT?
As of the 2023/24 tax year, the basic Nil-Rate Band allowance on IHT is £325,000.
The RNRB gives you an additional tax-free allowance of £175,000 when passing your property to a direct descendant, meaning that the first £500,000 of your estate will be free of IHT.
Current IHT relief thresholds will remain frozen until April 2028.
With house prices rising, this freeze will affect many families who will find themselves increasingly above the thresholds and ultimately paying more tax.
The RNRB only comes into effect if the residences are passed directly to descendants, who are:
- A child, stepchild, grandchild, or other lineal descendant
- A spouse or civil partner of a lineal descendant (including their widow, widower, or surviving civil partner)
- An adopted or fostered child
- A child where they’re appointed as a guardian or special guardian when the child is under 18
Direct descendants do not include nephews, nieces, siblings, and other relatives not included in the above list.
Can my RNRB allowance work in addition to my spouse’s?
As with the basic IHT allowance, any unused RNRB allowance is transferrable to an individual’s spouse or civil partner upon death.
Descendants of spouses can claim a tax-free allowance from both individuals, a total of £650,000 in basic IHT Nil-Rate Band allowance and £350,000 from RNRB.
Therefore, descendants can enjoy £ 1 million of an estate tax-free if they meet the right conditions.
RNRB on high-value properties
On estates worth £2 million or more, the RNRB allowance will reduce by £1 for every £2 that the estate is worth.
However, the amount of transferable RNRB to a surviving spouse or civil partner is affected, so you must calculate the figures correctly.
Maximise your tax savings.
Seek professional advice to take full advantage of the tax planning opportunities this offers.
