The Residence Nil-Rate Band – What does this mean for me?
As property prices have continued to increase, many clients express concern that, if their property does not attract either Agricultural or Business Property relief from Inheritance Tax (IHT), their family home will need to be sold to pay the tax bill.
Currently everyone can give away £325,000 free from Inheritance Tax. This is known as the Nil-Rate Band (NRB).
IHT is charged at 40% on the chargeable value of an estate, above the NRB, after taking into account the value of any necessary chargeable lifetime transfers. The chargeable value is the value after deducting liabilities, reliefs and exemptions.
Where an estate qualifies for spouse/civil partner exemption, if the surviving spouse/civil partner dies on or after 9 October 2007 the unused proportion of the NRB when the first person died can be transferred to the estate of the surviving spouse/civil partner, so the NRB can currently be up to £650,000.
In April 2017 an additional Main Residence Nil-Rate Band (RNRB) will be introduced for an estate if the deceased’s interest in a residential property, which has been their main residence at some point and is included in their estate, is left to their direct descendants on death.
The value of the RNRB for an estate will be the lower of the net value of the interest in the residential property of the maximum amount of the band. The maximum amount will be phased in so that:
- £100,000 for 2017 to 2018
- £125,000 for 2018 to 2019
- £150,000 for 2019 to 2020
- £175,000 for 2020 to 2021
It will then increase in line with the Consumer Price Index (CPI).
The qualifying residential interest will be limited to one residential property but executors will be able to nominate which residential property should qualify if there is more than one in the estate. A property which the deceased never lived in will not qualify.
A direct descendant will be a child (including a step-child, adopted child or foster child) of the deceased and their lineal descendants.
A claim will be made on the death of a person’s surviving spouse/civil partner to transfer any unused proportion of the additional NRB unused by the person on their death, in the same way the existing NRB can be transferred.
If the net value of the estate (after deducting any liabilities but before reliefs and exemptions) is above £2 million, the additional NRB will be tapered by £1 for every £2 that the net value exceeds that amount.
Ann-Marie Matthews is a solicitor in the private client team at Barker Gotelee, Solicitors in Suffolk.
This article first appeared in the East Anglian Daily Times, 15 February 2017