The Residence Nil Rate Band (RNRB) is an extra tax-free exemption that can be claimed on death to mitigate inheritance tax payable. It is an enhancement to the ordinary Nil Rate Band and is available for deaths on or after 6th April 2017. It currently stands at £175,000 and is frozen until 2027/28. The RNRB is not automatically given and must be claimed if required.
Requirements to qualify for the Residence Nil Rate Band
The Residence Nil Rate Band can be claimed if a person dies on or after 6 April 2017 leaving a residential property interest which is closely inherited.
‘Closely inherits’ means that the person inheriting must be a lineal descendant such as a child, stepchild, grandchild, a spouse or civil partner of a lineal descendant. Lineal descendants include step-children, however, children of a cohabitee are not included.
What is a residential property interest?
A residential property interest means that the property must have been the deceased’s residence at some time during his/her period of ownership. It does not have to be the deceased’s residence as at the date of death and it could be a rental property.
How does the Residence Nil Rate Band work?
The RNRB is capped at the value of one residential property, which is closely inherited. For example, if the deceased’s home was worth £125,000, this is the amount of RNRB which can be claimed.
If the net value of the deceased’s estate exceeds the taper threshold of £2million, the RNRB amount is withdrawn by £1 for every £2 that the value of the estate exceeds the threshold.
A person who died before 6/4/2017 is deemed to have a Residence Nil Rate Band of £100,000.
Any unused RNRB by a former spouse/civil partner can be carried forward to a surviving spouse/civil partner.
To be able to claim the RNRB, the lineal descendant must inherit directly and not through a trust or settlement, with the exception of the following:
- An Immediate Post Death Interest trust (IPDI)
- A disabled person’s interest trust
- A bereaved minor or 18-25 trust
The RNRB cannot be claimed if there is a Property Trust or Discretionary Trust.
The RNRB is available on the residence if and only if a lineal descendant beneficiary becomes beneficially entitled to the residence. For example, if John leaves his estate, which includes a residence on an IPDI trust, for his wife Kate and then to their son contingent on attaining the age of 18 years, Kate’s estate will only benefit from the RNRB if their son is 18 by the time she dies. The Trustees of Kate’s estate can however obtain RNRB retrospectively by giving the son absolute interest within 2 years of death by way of a Deed of Variation.