Have you updated your will in the light of the Residence Nil Rate Band?

Posted by Robert Mulvany on
On 6 April 2017 an additional inheritance tax relief known as the Residence Nil Rate Band (RNRB) was introduced. This may have reduced inheritance tax for many, but the provisions are complex, as highlighted by the Chancellor Philip Hammond's recent call for the Office of Tax Simplification (OTS) to review the UK’s inheritance tax regime, and outline ways in which the tax can be simplified.

The RNRB applies to estates where a person leaves their interest in their home, or a share of it, to direct descendants, such as children or grandchildren. It is in addition to the existing Nil Rate Band (NRB) which is currently set at £325,000. The RNRB is currently £100,000 and will gradually rise each tax year until 2020/21 when it will reach £175,000 following this it will rise in line with the Consumer Prices Index.

As is the case with the NRB for married couples or civil partners, any unused RNRB can be transferred to the surviving spouse's/civil partner's estate. Even if your spouse/civil partner died before 6 April 2017, you may still be able to carry forward any unused RNRB to be used on your death. 

The RNRB will only apply to estates under £2million and will be tapered down for estates worth more than this.

For a more detailed discussion of the RNRB please see our blog 'When is a million pounds not a million pounds? The new residence nil rate band'.

If you already have a Will, you should consider reviewing it to ensure that it makes use of the tax-saving benefit of the RNRB particularly if it contains a trust. It is common for parents to leave funds to their children in a trust until they reach a certain age. The RNRB will be available where property passes on the following types of trust:

  • An immediate post death interest (IPDI)
  • A bare trust
  • An 18-25 trust
  • A trust for a bereaved minor
  • A disabled person's trust

Discretionary trusts are excluded.

Be wary if:

  • Property is left into a discretionary trust as the RNRB will not be available even if all the beneficiaries are direct descendants, unless an appointment is made within two years of death.
  • Property is left into a qualifying interest in possession trust, but passes to a succeeding interest in possession trust.

The new RNRB provisions are complex and it may be the case that although at the heart of a trust, the intention is to benefit lineal descendants such as children and grandchildren, the terms of the trust mean that it does not benefit from the RNRB potentially missing out on tax savings for a couple of £80,000 in the current tax year rising to £140,000 in the 2020/21 tax year.

Other reasons for making or updating your Will?

  • Your estate will pass to the people or charities you wish to benefit instead of being distributed in accordance with the intestacy rules.
  • You decide who administers your estate.
  • You can choose the guardians of any of minor children.
  • A Will makes the process of administering your estate less time consuming and, accordingly, less costly and stressful for your family and/or friends.
  • Your circumstances may have recently changed. For example, you may have separated or you may have children or grandchildren not born at the time you executed your last Will.
  • The IHT rules are changed (e.g. the RNRB is repealed or the Nil Rate Band is changed).

If you would like to speak to someone about making a Will or reviewing your current Will, please contact Rob Mulvany or a member of the Succession & Tax team. 

About the Author

Photograph of Robert  Mulvany

Robert is a solicitor in the Wills, probate, tax and trusts team based in Oxford.

Robert Mulvany
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