What is the Residence Nil-Rate Band “RNRB”?
The RNRB is an allowance for Inheritance Tax (IHT) which has become available in addition to the existing nil rate band of £325,000 per person. It applies to deaths occurring on or after 6 April 2017.
What is the current RNRB Allowance?
The extra amount for 2017 to 2018 is up to £100,000.
The maximum available amount will go up yearly.
For deaths in the following tax years it will be:
- £125,000 in 2018 to 2019
- £150,000 in 2019 to 2020
- £175,000 in 2020 to 2021
For later years, the threshold will go up in line with inflation based on the Consumer Prices Index.
Is the RNRB allowance available for everyone?
There are many requirements for the RNRB allowance to be claimed but the most important are:
- The estate of the individual must be lower than £2,250,000. Any estate that is higher than that value will not be entitled to the allowance.
- The assets must pass directly to a spouse direct descendants to claim the RNRB allowance. So the beneficiaries of a will of a single person who had no children cannot benefit from the allowance.
What are the implications in preparing Wills?
Robert says:
“The main thing to remember is that Wills come into effect only on death of the testator. In advising a person or couple making a will, as the date of death is always an unknown factor, I need to have regard to the following, including:
- whether the RNRB allowance is applicable and claimable based on my client’s current circumstances;
- that a family’s circumstances could easily change (client getting married, divorced, having children) which might affect the applicability of RNRB;
- that the financial asset picture could change (for example, by my client’s estate increasing from an inheritance from parents or from wealth accumulation or decreasing from gifting away assets within lifetime etc)
- that the law regarding the RNRB could change; the benefit might be abolished by a new government, or the amount of the allowance or the thresholds could change.
- Inflation could impact on value of assets (over a number of years).
With Will preparation, I tend to start off from the basic premise that a Flexible Trust structure would be contain and cover all of the likely possibilities. It is flexible to adapt to those future changes. It can be adapted to use, or not use, the RNRB as it may so apply. I like the structure to be flexible as possible for my clients in order to meet changing legislation or interpretation”.
If an Estate currently qualifies for full IHT relief using the RNRB, should clients not bother considering any further IHT planning?
As above, due to the changing factors that might apply, my advice is always to consider the worst case scenario of the RNRB allowance not being applicable as at the date of death. I would encourage clients to seek any further IHT gift planning that I can advise as well as taking some IFA financial advice and/or accountancy advice on what other products and options are available.
What are the implications if you are administering Estates where someone has died and the claim of the RNRB allowance would potentially benefit the estate in Inheritance Tax saving?
Making the claim for tax relief is a specialist area and it is important that someone inexperienced in making the claim does not attempt this. The calculation and reporting process is relatively complicated for a lay person and even inexperienced lawyers or professionals.
My advice is to ask me to confirm or check the amount of RNRB allowance that applies before you set about the process. Often it will be more time and cost effective to ask me to assist you in the matter.
There is some helpful guidance from HMRC on this.
In Summary
The rules and applicability of the RNRB are complex, both in terms of how to apply it and whether indeed to include it within one’s Will and estate planning. As part of my process for reviewing a person’s Will, I will cover off this area and provide the necessary advice and assistance.
If you’d like a chat to see how I can help, please get in touch.