The Residence Nil Rate Band which was introduced in the Summer Budget 2015 and came into force for deaths after 6th April 2017, increases to £175,000 per person in April 2020. The Residence Nil Rate Band is an allowance on top of the standard Nil Rate Band allowance (NRB - which is currently £325,000) The Residence Nil Rate Band is available when an estate is valued in excess of the standard nil rate band allowance and a residence is passed on to direct descendants on death. This includes stepchildren, children, adopted children, foster children and grandchildren of the deceased. It is not available where a residence passes to beneficiaries who are not direct descendants of the deceased such as nephews and nieces.
The Residence Nil Rate Band may be transferred between spouses or registered civil partners. If a property passes to a surviving spouse or registered civil partner on the first death and then down to the children/stepchildren/grandchildren on the second death, the Residence Nil Rate Band will not be used on the first death, but can be transferred over and claimed on the second death. From April 2020, on the death of a surviving spouse or civil partner, it will, therefore, be possible to claim up to £350,000 additional allowance on death (depending on the value of the property passing to the direct descendants).
Estates that are worth more than £2m will lose some or all of the Residence Nil Rate Band which will be tapered at a rate of £1 for every £2 over the £2m threshold.
Any unused part of the standard Nil Rate Band may also be transferred over to a surviving spouse or registered civil partner. As the Residence Nil Rate Band is available in additional to the Nil Rate Band allowance, it will be possible to pass up to £1million on the second death without any inheritance tax being payable.
What if a surviving spouse or registered civil partner has had to sell their home and move into a nursing home or downsizes after the first death? The Residence Nil Rate Band may still be claimed but it is important that evidence of the sale of the residence is kept to produce to the Revenue. The sale must have taken place after 8th July 2015.
If you would like further information about the Residence Nil Rate Band contact Julie Binge.