From 6th April 2017, people who leave their estate to direct descendants will benefit from a new initiative. The residence nil rate band (RNRB) will give the estate of individuals who die on or after this date, and leave their property directly to their direct descendants, an extra tax free allowance. This allowance is in addition to their available nil rate band presently, and since 2009, £325,000.
Direct descendants include children (natural, adopted or fostered), stepchildren and grandchildren. It does not include brothers and sisters, nieces and nephews of the deceased.
The RNRB can only be applied to estates worth less than £2m, although this limit is set to rise with inflation from April 2021.
The amount of the RNRB allowance increases yearly and for the following tax years will be April to April:
- £100,000 2017 -2018
- £125,000 2018 - 2019
- £150,000 2019 - 2020
- £175,000 2020 - 2021
Another significant boost to the allowance is that estates where one half of a married couple or civil partnership passed away before 6th April 2017 will not miss out. The transferable nil rate bonus (TRNRB) allows the estate of their survivor to claim twice the value of the RNRB available at the time of their death if the other conditions are met, namely their property is left to their direct descendants. Again, this will benefit estates up to £2m.
This means that the value for the survivor’s estate of the RNRB in the following tax years could with planning be April to April :
- £200,000 2017 - 2018
- £250,000 2018 - 2019
- £300,000 2019 - 2020
- £350,000 2020 - 2021
This will also be the case for spouses and civil partners who both die after 6th April 2017 if the first to die has left their estate to the other. This is because they can make use of the exemption to defer inheritance tax to the second death, therefore not using their RNRB. The estate of the survivor will again be able to claim twice the value of the RNRB available at the time of their passing.
These measures can provide significant benefits to the beneficiaries of an estate, adding to the nil rate band which we have seen no uplift in for several years.