What is the Residence Nil-Band Rate? And why does it matter to you?

What is the Residence Nil-Band Rate? And why does it matter to you?

The Residence Nil Band Rate (RNRB) which was introduced by the Government in 2017, benefits families passing on their main property to a direct descendent.

Families across the UK have the potential  to benefit from its ability to minimise Inheritance Tax (IHT) bills.

Will the RNRB mean paying less IHT?

For the 2023/24 tax year, the basic IHT Nil-Rate Band is £325,000.

The RNRB gives you an additional tax-free allowance of £175,000, where your main property is passed to a direct descendant. This means that the first £500,000 of your estate will be free of IHT.

The current IHT relief’s and thresholds have been frozen at their current level until April 2028, meaning that more estates will be liable to pay IHT.

The RNRB will only come into effect if a main residence is passed to direct descendants who are defined as:

  • A child, stepchild, grandchild, or other lineal descendant
  • A spouse or civil partner of a lineal descendant (including their widow, widower, or surviving civil partner)
  • An adopted or fostered child
  • A child where they’re appointed as a guardian or special guardian when the child is under 18

Direct descendants do not include nephews, nieces, siblings and other relatives.

Can my RNRB allowance work in addition to my spouse’s?

As with the IHT Nil-Rate Band, any unused RNRB will be transferred to an individual’s spouse or civil partner upon their death.

This means that estates can potentially pass on wealth of £1 million tax-free, where the right conditions are met.

RNRB on high-value estates

On estates worth £2 million or more, the RNRB allowance will reduce by £1 for every £2 that the estate is worth.

Tapering can also affect the amount of RNRB that can be transferred to a surviving spouse or civil partner.

Maximise your tax savings

To take full advantage of the tax planning opportunities this offers, professional advice should be sought.

For help and advice with IHT and the RNRB, contact us today.