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  • Overview

    The RNRB is an additional tax free allowance that the government included in its summer 2015 budget to meet its election pledge to “take the family home out of tax by increasing the effective inheritance tax threshold for married couples and civil partners to £1million”.

    It will, eventually, amount to up to a maximum of £175,000 per eligible person.  The allowance is transferable between couples in a similar way to the existing transferable nil rate band and will create an effective £1million nil rate band for married couples or civil partnerships who own or have owned a property worth at least £350,000.

    The RNRB is being introduced in stages:

    £100,000 in 2017/18

    £125,000 in 2018/19

    £150,000 in 2019/20

    £175,000 in 2020/21 (just prior to the next election allowing the Conservatives to say that they had met their 2015 election pledge)

    The value of the RNRB will be the lower of the net value of the property (after deducting any liabilities such as a mortgage) or the maximum value of the relief.  Thus, where a property is worth £350,000 but there is an outstanding mortgage of £200,000 the relief is restricted to £150,000.  This might be relevant to couples considering equity release in later life.

    When will it be available?

    The RNRB will be available where a person owns at least one qualifying residential interest (QRI) immediately prior to their death.  If there is more than one property the personal representatives can nominate which property the relief applies to e.g. a holiday home, which might be more valuable than the person’s usual abode.  Buy-to-let properties are not eligible.

    The RNRB is not available in one’s lifetime so lifetime gifts of property are not eligible for this relief (unlike with the nil rate band) but the property will fall outside your estate anyway if you live for a further seven years and this remains a tax planning option if you have high levels of liquid assets and can afford to pay rent on the property given away or on another property.

    Where the deceased is married or in a civil partnership and their surviving spouse or civil partner dies after 5 April 2017 the RNRB of the deceased spouse or civil partner will be available in full irrespective of whether the (previously) deceased spouse or civil partner had a QRI interest and irrespective of the dispositions in their estate but the relief will be limited to the value of £100,000.  Any brought forward allowance must normally be claimed within two years of the survivor’s death (as is the case with the nil rate band).

    The RNRB is reduced where the value of a person’s estate exceeds the ‘taper threshold’ which is set at £2million.  The RNRB will taper away by £1 in every £2 that the estate exceeds the taper threshold.  Note this threshold relates to the whole estate and not just the property on which relief would be claimed.

    The QRI must be ‘closely inherited’.  Closely inherited means the 'lineal descendants' of the deceased (i.e. children or grand-children etc).  Step-children, adopted children and foster children count in this respect as does the guardian of a minor.  A disposition to any other beneficiary, even if it’s another branch of the family, is not eligible for this relief.

    The RNRB will eventually be available even if a person has moved to a smaller less valuable property or has gone into residential care provided property or other assets of an equivalent value to the value of their most expensive QRI are passed to lineal descendants.  This is all subject to detailed rules that will be published shortly.

    When won't it be available?

    Settlements by Will do not qualify unless a lineal descendant has an immediate post-death interest or a disabled person’s interest or where the property becomes settled property in a bereaved minor’s trust or an 18-25 trust and that property is held for the lineal descendant’s benefit.  Discretionary trusts even if the beneficiaries are all lineal descendants will not be eligible for the RNRB (that said it should be possible to appoint the QRI out to lineal descendants within two years of death and so claim the relief).  Gifts to lineal descendants where there’s a reservation of benefit will be eligible for the RNRB.

    There has been an outcry in relation to some perceived unfairness in the application of the new RNRB:

    1. From childless couples who cannot benefit from the relief as they have no lineal descendants.  Often this is not through choice.  By 2030 nearly one in five couples will have no lineal descendant,so this is a substantial number of disenfranchised people.  Given that few families retain their parents house on the death of the surviving parent, this seems harsh.
    2. From couples who have no QRI or only own a property that is lower in value than the maximum amount of the RNRB (but might possess other assets that could absorb the RNRB).

    It is likely that the eligibility rules will be finessed over the coming years in response to these criticisms.

    What should I do now?

    Clearly, with the RNRB being introduced in 2017/18 there is scope for planning ahead.

    Immediate steps to consider include:

    1. Ensuring that both spouses and civil partners are owners of the QRI.  Care needs to be taken to ensure that other circumstances are not prejudiced by this move e.g. where property is held in one person’s name to prevent it being used as collateral for a loan, guarantee etc.
    2. Digging out any paperwork relating to all property held or previously held by a couple particularly the disposal of a larger property where a couple’s current property is valued at less than £350,000.
    3. Reviewing the dispositions in your Will to ensure that any property which will be treated as a QRI is left to lineal descendants (advice should be taken before the property is left on a discretionary trust).  With the recent call for evidence in relation to the use of deeds of variation it may not be possible in the future to make changes to someone’s Will after their death so it’s more important to ensure that your Will is up to date and then kept up to date.
    4. Considering whether there is an alternative basis on which a loan on the QRI might be held.  In the example above, if the mortgage on the property is swapped for a loan on other assets this will save £80,000 of inheritance tax.
    5. Looking at the value of your estate particularly where it’s close to the £2million threshold and consider giving away assets that don’t qualify for the RNRB first (there is also a risk that giving away a QRI where there is no reservation of benefit and then dying within seven years will bring the property back into the estate for tax purposes but no RNRB will be available). As you will appreciate, giving away assets in your lifetime, whilst a desirable and necessary objective for many families, is an extremely complex matter and we’d recommend that you take specific advice before you do so to ensure that you maximise your eligibility to all the available inheritance tax reliefs and don’t fall foul of other lifetime taxes.


    Whilst any increase in the inheritance tax threshold is welcome, the manner in which the government has decided to do so is complicated and discriminatory and it’s likely to be revised before coming into force. 

    It makes the life of taxpayers more difficult, which is regrettable, and it might, in hindsight, have been preferable just to increase the nil rate band by the 20% accountants say will cost the same as this proposed change.

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