How the Residence Nil Rate Band affects farmers and business owners
By Rebecca McCarthy
Following the new rules regarding the Residence Nil Rate Band, it is important farmers and business owners are aware of how the band will work alongside the current inheritance tax allowances.
If you are a farmer and/or business owner you may be familiar with the terms “Agricultural Property Relief” (APR) and “Business Property Relief” (BPR). These reliefs allow farmland and the farming or other business to be passed on tax free upon death where there may otherwise be a hefty inheritance tax bill.
The Residence Nil Rate Band (RNRB) offers married couples the opportunity to pass on combined assets of up to £1 million tax free to their children, ultimately allowing everyone an extra tax free allowance of £175,000 each (or £350,000 for a married couple) to use when passing on their home. The hope is that this will help to alleviate inheritance tax concerns.
However, farming and business owners may not benefit from the new rules. Unfortunately, if an estate is worth over £2 million, the RNRB is reduced by £1 for every £2 over £2 million. This taper relief will obviously disadvantage those with assets over £2 million; however, what some have not realised is that the value of your estate is calculated before other reliefs are taken off i.e. before APR or BPR is applied, and so the value of your business would be counted. This can easily push a person’s estate over £2 million.
It may be that an unsuspecting farmer or business owner has home assets separate to his business worth over £650,000 (the current Nil Rate Band which will remain) which he or she will struggle to pass on to his or her children completely tax free, whereas those without businesses but with an estate worth £900,000 will not have to pay any tax at all.
Of course, there are tax planning opportunities available and we can advise on how you can pass on your estate in the most tax efficient way.
Rebecca McCarthy is a paralegal in the Private Client team at Barker Gotelee.