Residence nil rate band ― main provisions

By Tolley
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The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Residence nil rate band ― main provisions
  • What is the residence nil rate band (RNRB)?
  • Calculation of the amount of the relief
  • Tapering provisions
  • Qualifying residences
  • Inherited and closely inherited
  • Downsizing
  • Practical considerations and planning points
  • Making a claim

This document discusses the calculation of the amount, tapering provisions, and qualifying residences. It also covers planning points and how to make a claim.

 

What is the residence nil rate band (RNRB)?

The RNRB is an addition to the basic nil rate band (NRB), which further reduces the inheritance tax payable on death. It differs from the basic NRB in that it is applied only to the death estate and not to lifetime gifts within seven years of death.

The enhanced allowance is dependent on:

  • the value of residential property in the estate, and
  • the inheritance of lineal descendants

The RNRB was introduced in Finance Act 2015, with further refinements added by Finance Act 2016. It took effect from 6 April 2017. The detailed legislation is to be found in amendments to IHTA 1984. Much of the commentary on the provisions has focused on the mind-boggling complexity of the legislation which, to a large extent, is the result of the specific political target of the additional relief. The stated aim of the allowance was to make it easier to pass on the family home to children and grandchildren without the burden of inheritance tax. It follows a conservative election promise in April 2015 to “take the family home out of inheritance tax so you can pass something on to your children”.

IHTA 1984, ss 8D–8M

The RNRB is progressively withdrawn for individual estates valued at more than £2 million so the relief is aimed squarely at the moderately wealthy, who hold a large proportion of their wealth in their home, and will not benefit the very rich.

Calculation of the amount of the relief

The RNRB provisions apply a nil rate of tax to a portion of the chargeable transfer on death. It is applied before the basic NRB. This additional amount, termed the ‘default allowance’, is made up

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