Legal News | 8.07.21
Home is where the heart is
Most readers will be familiar with the nil rate band or “NRB” (currently £325,000) available to a deceased’s estate for inheritance tax purposes but they may not be as familiar with the additional residence nil rate band or “RNRB” (currently £175,000). Generally, the RNRB is available where a residential property interest is inherited by a deceased’s direct descendants.
• “Residential property interest” means an interest in a dwelling house that has been the deceased’s residence at some point during their period of ownership. “Dwelling house” clearly includes buildings of bricks and mortar but it can also include less common homes such as caravans and houseboats.
• “Inherited” means the residential property interest must become comprised in the direct descendants’ estates for inheritance tax purposes following the deceased’s death. As such, if the residential property interest is only held upon trust for the direct descendants following the deceased’s death, the RNRB may not be available to their estate.
• “Direct descendants” means children (including stepchildren and foster children), grandchildren, great-grandchildren etc. but also their spouses, civil partners, widows, widowers and surviving civil partners (unless they have remarried or entered into another civil partnership). It does not include brothers, sisters, nephews or nieces.
Like the NRB, the RNRB is transferable between spouses and civil partners. There are also saving provisions which mean the RNRB may still be available to a deceased’s estate where the deceased disposed of their residential property interest on or after 8 July 2015 and before their death (perhaps because they moved in with a relative or to a care home).
However, the RNRB is tapered for large estates. The RNRB is reduced by £1 for every £2 that a deceased’s estate exceeds the threshold of £2,000,000. As such, if a deceased’s estate is worth £2,350,000 or more, and there is no transferable RNRB from a predeceased spouse or civil partner’s estate, the RNRB would be tapered to nil.
If you would like more information on the RNRB or to discuss whether it will be available to your estate, please contact Wansbroughs’ private client team at firstname.lastname@example.org.