From 6 April 2017, the Residence Nil Rate Band (“RNRB”) is available for estates of people who leave the interest in the family home to direct descendants (children, grandchildren and other lineal descendants and also includes, a husband, wife or civil partner of a lineal descendant, stepchildren, adopted children and foster children).
A property does not need to be specifically mentioned in a Will to qualify, so long as it forms part of the estate on death.
The RNRB is currently £150,000, rising to £175,000 on 6 April 2020. For estates worth over £2 million, the RNRB is “tapered” and reduced at a rate of £1 for every £2 over the £2 million.
The RNRB is transferrable between spouses, in the same way the Nil Rate Band for Inheritance Tax is. This means a married couple may benefit from double the allowance if it is not used when the first spouse died. The RNRB is also automatically available to transfer to the estate of the second deceased spouse if the first spouse died before 6 April 2017 (although the executors would need to make a claim to transfer the RNRB). This is because the first spouse did not have the opportunity to use the RNRB.
The amount of RNRB available will depend on what your home is worth e.g. if your home is worth £100,000, only £100,000 of the current £150,000 RNRB can be claimed. The remaining “unused” RNRB cannot be offset against other assets in the estate.
The RNRB can be lost if direct descendants do not inherit your property or if you do not own a property on death. The RNRB can be lost if the property is left to some form of trusts in your Will (again the property does not need to be specifically mentioned), such as a discretionary trust or age contingent trust to grandchildren (for example where grandchildren cannot inherit until age 21, or any other age).
If you sold your home on or after 8 July 2015 and your estate, or part of your estate, is being inherited by a direct descendant, the RNRB will still be available. This is so even where you have sold your home and downsized to a less valuable property, or even if you no longer own the property.
If you own more than on property on death which is or has been your main residence, then your Executors must choose which of them will benefit from the RNRB.
The law surrounding the RNRB is complex and it is a good time for people to review their Wills to see if any amendment would be beneficial to maximise the RNRB for their estate,