Inheritance Tax is charged on your death at the rate of 40% based upon the value of your assets. This 40% rate is only charged on any value exceeding the Nil Rate Band, which presently stands at £325,000 (as at February 2021). The Nil Rate Band is the amount which is chargeable to Inheritance Tax (‘IHT’) at the rate of 0%. From 6 April 2017, an additional Residence Nil Rate Band applies so that less IHT may be paid when the family home is left to direct lineal descendants, such as children and grandchildren, this currently stands at £175,000.

The terms of your Will can impact the ability for your estate to claim the Residence Nil Rate Band on your death and therefore, it is important to review your Will to ensure that your estate benefits from this relief.

Will my estate benefit from the Residence Nil Rate Band?

The Residence Nil Rate Band (RNRB) can be claimed on the estate of a person who dies on or after 6 April 2017. In the case of a person that dies before that date, their surviving spouse or civil partner may be able to carry forward the deceased’s spouse/partner’s RNRB to be used when the surviving spouse/partner dies.

Your estate will benefit from the RNRB if you leave your interest in the family home to direct descendants, such as children or grandchildren and some other individuals, such as stepchildren (qualifying beneficiaries). The RNRB could help those who inherit your assets make an additional IHT saving by increasing the part of your estate that is taxed at 0% rather than 40%.

The RNRB can be claimed if all of the following apply to you: you die on or after 6 April 2017; you leave an estate valued at less than an upper limit, which is initially £2 million but is set to rise with inflation from 6 April 2021, the RNRB is tapered down for estates worth more than this; and you leave your home to qualifying beneficiaries.

It is customary that the partner’s/spouses leave their home to the surviving spouse/partner and as such, on the deaths of both individuals, there will be thus be two RNRB’s that the estate can claim.

What if I sell my home?

The RNRB will remain available where you have sold your property and downsized to a less valuable property, or even if you no longer own a property, provided that you sold your home on or after 8 July 2015 and at least part of your estate is inherited by a qualifying beneficiary.

What if I have more than one home?

The RNRB will apply to your main residency home, thus, the property where you spent the majority of your time at. However, if your executors are unsure of this, the executors must choose which property they seek to apply the RNRB to.

Review your Will or make one

To ensure you maximise the tax-saving effect of the RNRB we strongly recommend that you review your Will or subsequently, if you do not have a Will in place, you should seek to make one. The conditions for claiming the RNRB are complicated and you should seek expert advice to ensure that your family can benefit from the enhanced Nil Rate Band when you or your spouse/partner die.

Author John Szepietowski

More posts by John Szepietowski