Posted 11th May 2020
From 6 April the Residence Nil-Rate Band (RNRB) increased to £175,000. This was the final annual rise of £25,000 since the RNRB came into effect in April 2017.
There can be confusion associated with the RNRB and some quirks that not everyone is familiar with. Two of these are criteria which determine whether or not the RNRB applies:
- There needs to be a ‘Qualifying Residential Interest’ (QRI)
- Qualifying property must be ‘closely inherited’
What counts as QRI?
The RNRB is only available to individuals or couples who have QRI on death, or who had one before. QRI means ownership of a residential property that has been your home at some point, it doesn’t need to have been your main residence at the time of death. Therefore a buy-to-let property would not qualify, but a property that was once your home and was later let to tenants would.
What does closely inherited mean?
This means inherited by a direct descendent. The following beneficiaries would qualify:
* Your children (including adopted, fostered or stepchildren) and grandchildren
* The spouses of those children or grandchildren
* Widows, widowers or surviving civil partners or those children or grandchildren if not remarried at the
date of your death
There are other aspects of the RNRB that need to be noted:
The RNRB does not apply for homes transferred before death
The important distinction between the RNRB and the Inheritance Tax nil-rate band is that the RNRB only applies to homes owned by you on death. A home transferred to children as a lifetime gift will not have the RNRB available to offset against the transfer. However, if a home is left to your children on death the RNRB will be available.
Homes settled into a trust are unlikely to qualify
If your intention is to settle your home into a discretionary trust during your lifetime or on death, even if the potential beneficiaries are children or grandchildren, it is likely the RNRB will not apply.
Be aware of the tapering restriction
The amount of RNRB available is reduced by £1 for every £2 by which the deceased’s net estate exceeds the ‘taper threshold’ of £2 million. In some instances this will mean careful consideration and estate planning is needed to ensure the full benefit of the RNRB can be utilised.
We are able to advise and assist you to ensure you make the best use of this allowance.