Making use of the Residence Nil Rate Band

The Residence Nil Rate Band (RNRB) has been recently introduced and is only able to be claimed on estates where the deceased has died on or after 6 April 2017. The RNRB increases the amount which can pass free of Inheritance Tax on the death.

In order to claim this new relief the deceased’s property (or the proceeds of sale) must be inherited by a “direct descendant” such as a child. We are seeing estates where the will has been prepared, often many years ago, leaving the deceased’s assets on the terms of a discretionary trust and not directly to children. This type of arrangement will not qualify for the RNRB relief unless action is taken within two years of death.

The current RNRB is £100,000 and will rise to £175,000 in April 2020. This means £40,000 in Inheritance Tax, rising to £70,000 in 2020, can be saved if the exemption is able to apply. In addition, it may be possible to also claim the RNRB of a spouse or civil partner if they have previously died without making use of their RNRB, even if this death occurred before 6 April 2017.

How does this work in practice?

In one case the children’s father had died many years ago and the house at that time passed to their mother who has now died. Their mother’s will left the residuary estate on the terms of a discretionary trust. Their mother wanted the trust set up to protect assets for her children for a number of reasons. Their mother also wanted to ensure her children where treated equally, if possible. Following our advice and after considering the children’s current circumstances, the trustees of the will trust have decided to transfer a share of the house to each of the children, releasing sufficient value form their mother’s house to claim the RNRB and that of their father. This means £80,000 in Inheritance Tax has been saved following the advice the trustees received.