17 Nov Inheritance Tax main residence nil-rate band
The new Inheritance Tax main residence nil-rate band (RNRB) comes in to effect from April 2017. The RNRB will allow for a new £175,000 per person transferable allowance for married couples and civil partners when their main residence is passed down to children after their death. Any unused portion of the RNRB can be transferred to a surviving spouse or partner in a similar way to the existing nil-rate band (NRB).
The allowance will initially be for £100,000 from 2017-18, increasing to £125,000 in 2018-19, £150,000 in 2019-20 and £175,000 in 2020-21. The allowance will be available to the deceased person’s children or grandchildren. HMRC has published a new guide explaining how the RNRB applies in most circumstances. The guidance also includes 18 case studies with workings on some common scenarios. The legislative provisions have been drafted to ensure that an estate will be entitled to the RNRB where an individual downsized to a smaller property on or after 8 July 2015. This is the date the measure was first announced.
The RNRB is on top of the existing £325,000 Inheritance Tax threshold. Taken together this means that by 2020-21, parents will be able to pass on property worth up to £1 million free of Inheritance Tax to their direct descendants.
There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2m. This will be at a withdrawal rate of £1 for every £2 over this threshold.