Inheritance Tax Planning – The Main Residence Nil Rate Band

In our last blog, ‘Inheritance Tax on Gifts’, we shared a number of
opportunities for effective Inheritance Tax (IHT) planning. The most straightforward of these being gifting assets to reduce the value of your estate…IHT Blog

Furthering the opportunity within the IHT space is the Main Residence Nil Rate Band (RNRB), recently introduced (6th April 2017) with the objective to reduce the burden of IHT for most families by making it easier to pass on the family home to direct descendants without a tax charge.

How does this work in practice?

Well the measure introduces an additional Nil Rate Band, with an increasing value being phased in over a 4 year period, for situations where a main residence is passed on death to a direct descendant.

  • £100,000 in 2017/18
  • £125,000 in 2018/19
  • £150,000 in 2019/20
  • £175,000 from the 6th April 2020

This means that by 2020/21 families could escape IHT on up to £1m of their wealth – as each parent will have a Nil Rate Band of £325,000 plus a RNRB of up to £175,000.

In terms of exactly who could benefit, the RNRB is only available where the main residence passes to children (including adopted, foster or step children) or linear descendants on death. However, the rules have been extended to accommodate situations where the family home passes into the joint names of the deceased’s child and their spouse.

The measure concerns relevant transfers on death on or after the 6th April 2017, applying to reduce the tax payable by an estate on death; and won’t apply to reducing the tax payable on lifetime transfers that are chargeable as a result of death…

Enabled by legislation, the RNRB extends the current freeze of the existing Nil Rate Band at £325,000 which will stay at this rate until at least 2021.

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