The introduction of the RNRB system was aimed at helping people who wish to leave their family home to their loved ones.
It does this by reducing the amount of Inheritance Tax (IHT) your estate is liable for.
Despite the obvious benefits of the RNRB system, the only practical way to ensure that your loved ones benefit from this system is to prepare your Will to make the most of this allowance.
Where no Will is present, you are reliant on the relief being applied haphazardly through intestacy, which is by no means guaranteed.
The Residence Nil Rate Band Explained
You are liable for IHT on the value of your estate, this liability includes your property and possessions, savings and investments, assets held abroad, life policies, and business interests when you pass away.
The current IHT rate threshold for an individual is £325,000. This is also known as the Nil Rate Band.
Up to this threshold, you are not liable for IHT on the value of a person’s estate.
Since 6 April 2017, executors have been eligible to claim an added inheritance tax threshold, the Residence Nil Rate Band.
In simple terms, this £175,000 threshold is available if the deceased leaves a main residence directly to lineal descendants. The legislation refers to the property being “closely inherited.”
When a person dies and initially leaves this property to a spouse or civil partner their entire threshold of £500,000 is passed to their surviving partner. This means that the total threshold for a married or a civil partnered couple could be up to £1 million.
Do I qualify for the allowance?
To qualify for the allowance, your loved ones must inherit it directly. The existence of a trust could prevent direct inheritance.
RNRB cannot be claimed if the inheritance is deferred, and a trust has been created.
Some families may need to defer inheritance in light of the age of the beneficiaries.
Due to the tax consequences of an indirect inheritance via a trust, families are encouraged to think carefully about how they will manage a loved one’s estate.
You must review your Will to ensure it reflects your wishes, and that it incorporates any available IHT adjustments. Contact us today for advice.