Residential Nil Rate Band Increased for a third time
By Emma Huscroft, Wills & Probate Solicitor
Figures announced by the HMRC this month confirm another record high of £5.369 billion in Inheritance Tax receipts in 2018/19. With an increase of 3.1% from 2017/18, it begs the question, do our current tax free allowances on death go far enough?
Since 2009/2010, individuals in the UK have been able to leave up to £325,000 on their death without paying Inheritance Tax. In 2017/18 the residential nil rate band was introduced as a ‘top up’ to the existing threshold.
Also known as the family home allowance, it provided an individual with an extra £100,000 for family homes passed on to direct descendants such as children and grandchildren. Soaring property prices in recent years have resulted in many estates being dragged into Inheritance Tax territory. The latest statistics highlight that the Governments attempt to bridge the gap with the introduction of the RNRB maybe does not go far enough.
Property and Inheritance Tax
Since the 6th April 2017, the RNRB has enabled eligible people to pass on a property to direct descendants with a potential save to Inheritance Tax. The RNRB has an incremental element to it, starting at £100,000 initially, increasing to £125,000 in 2018/19 and again to £150,000 in 2019/20.
To be eligible for the RNRB an individual must own or have a share in a property, the main family home. The property must be passed to direct descendants such as children and grandchildren. The rules also include step-children.
How the RNRB may assist you
With the current rules an individual is, if eligible, afforded an allowance of £475,000; made up of a £325,000 basic nil rate band and £150,000 family home allowance.
However, like the basic nil rate band, if unused it is transferable. If you are leaving your estate to your spouse or civil partner, you will be eligible for spouse exemption on your estate. Thereafter, on the second death, a couple have two basic nil rate bands available together with two family home allowances as a top up.
The transferable element to the RNRB now means a married couple or civil partnership have a potential inheritance tax free element of £950,000.
Any assets over and above £950,000 are charged to Inheritance Tax at 40% (unless other exemptions such are charitable relief apply). Despite the rise in the RNRB for the third time, HMRC figures show that maybe more needs to be done to protect individuals from the Inheritance Tax trap who have simply been caught because they bought property at the right time and place.
Estates valued above the £2m tapere threshold lose £1.00 for every £2.00 excess. This applies to the total value of the estate, including any trusts.
There are several tax traps related to the RNRB relief and if individuals are relying on these allowances on their death, it is prudent to seek legal advice for estate planning. We are here to help. 0800 160 10 10.