The Residence Nil-Rate Band (RNRB) was established by the Government in 2017, providing benefits to families passing on their primary property to a direct descendant.
Since its introduction, millions of UK families have taken advantage of its potential to reduce Inheritance Tax (IHT) bills.
For the 2023/24 tax year, the basic Nil-Rate Band allowance on IHT is £325,000. The RNRB grants an extra tax-free allowance of £175,000 when your primary residence is passed to a direct descendant. Consequently, the first £500,000 of your estate will be exempt from IHT.
The current IHT relief thresholds will remain unchanged until April 2028. As house prices continue to rise, this freeze will impact many families who may find themselves increasingly exceeding the thresholds and ultimately facing higher tax payments.
The RNRB applies only when residences are passed to direct descendants, defined as:
Direct descendants do not include nephews, nieces, siblings, and other relatives not mentioned above.
Like the basic IHT allowance, any unused RNRB allowance can be transferred to an individual’s spouse or civil partner upon their death. Descendants of their spouses will then be able to claim a tax-free allowance from both parties.
This amounts to £650,000 in basic IHT Nil-Rate Band allowance and £350,000 from the RNRB. Under the right conditions, descendants can potentially receive £1 million of an estate tax-free.
For estates valued at £2 million or more, the RNRB allowance will decrease by £1 for every £2 that the estate is worth.
This may also affect the amount of RNRB that can be transferred to a surviving spouse or civil partner, requiring accurate calculations.
To fully capitalise on the tax planning opportunities this provides, it is advisable to seek professional guidance. For assistance with IHT and the RNRB, get in touch with us today.
