The Residence Nil Rate Band (RNRB) is an inheritance tax allowance, set at £175,000. It is abbreviated as RNRB by experts. It is a transferable allowance for married couples and also for civil partners. It applies when a main home is left to direct descendants such as children or grandchildren.

This blog describes the residence nil rate band in a simple manner. You will get to know how it is applicable to the nil rate band inheritance tax regulations.

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What is Inheritance Tax (IHT)?

IHT, or inheritance tax, applies to estates upon death. The government charges IHT on property exceeding some amounts. Inheritance tax is another issue that people typically consider when making their wills.

The RNRB assists in lowering the tax for most families of direct descendants (children and grandchildren). The nil rate band of the basic IHT is £325,000, but RNRB can increase this amount under certain conditions. Below this amount, there is no IHT. They pay 40 percent above it. And if a sufficient charitable donation is made then the IHT rate on a UK estate is reduced from 40% to 36%.

A large number of people have their own homes, and these constitute a significant portion of their estates. This is further relieved by the residence nil rate band.

The residence nil rate band was initiated in 2017. It is to assist families in retaining homes without having high tax obligations. This RNRB increases the nil rate band for estates that qualify.

Understanding the Nil Rate Band

The nil rate band is the portion of an estate that is exempt from inheritance tax. Today, the IHT nil rate band is £325,000 per head. Couples or civil partners can combine their unused nil rate bands if one partner’s estate does not use the full £325,000. The unused portion can be transferred to the surviving partner’s estate. This will be up to £650,000 tax-free when married as a couple or civil partners.

The nil rate band can be transferred from one spouse or civil partner to the surviving partner if the first partner’s estate does not use the full nil rate band. If a spouse does not use up their full nil rate band, the unused part can be passed to the surviving spouse, giving them a larger allowance.

If the first spouse used £100,000 of their £325,000 nil rate band, the surviving spouse’s nil rate band would be £550,000, not £650,000.

The nil rate band has remained frozen since the year 2009. The government had this frozen up to 2030. This has impacted the family’s estate planning. The nil rate band IHT rate did not increase with inflation. IHT nil rate band limits have been imposed on more estates.

The basic nil rate band is usually confused with some others as the residence nil rate band. It applies to homes passed on to direct descendants.

What is the Residence Nil Rate Band?

The residential nil rate band is an additional allowance of IHT. The RNRB applies when a person’s home is passed on to direct descendants upon their death. The RNRB is now £175,000 per head. This increases the total tax-free amount.

The residence nil rate band was introduced by the government as a way of assisting families. It is aimed at the main home nil rate band of owned estates. You are eligible in case there is a qualifying residence in your estate.

Children and grandchildren are immediate family members and legal descendants. Adopted children and step-children are included, too. The IHT residence nil rate band necessitates that you leave the home to them. This may occur by rule of will or intestacy.

The RNRB does not apply to every estate. Only this works in the direct case of inheritance of the home. For the RNRB to apply, legal heirs must receive the home directly. If a home is placed in a discretionary trust, the RNRB is usually lost.

It is commonly called the IHT residence nil rate band. This points to its connection with inheritance tax relief. The residence nil rate band assists in minimising the tax on family houses.

What is the Eligibility for RNRB?

You must fulfil the important conditions of the residence nil rate band. It includes:

• The first condition is that the deceased must have owned a residence that is passed on to direct descendants.
• This is the principal residence nil rate band requirement. It has to be the house you used to live there.
• Second, leave it to the immediate legal descendants. The RNRB also applies to lineal relatives and in some cases to their spouses or civil partners. For example, it can cover a surviving husband, wife or partner of a deceased child or grandchild.
•  The IHT residence nil rate band applies to all lineal relatives.
• The value of your estate is also important. If the estate is worth more than £2 million, the RNRB is gradually tapered. For every £2 above the threshold, the RNRB is reduced by £1.
• The RNRB can apply to foreign properties as long as they are part of a deceased’s estate that is subject to UK Inheritance Tax. Eligibility depends on the deceased’s domicile status. Foreign properties can be eligible provided that they comply with the regulations. Consult HMRC in particular cases.

The executors claim the RNRB on the tax returns (IHT400). The details of the nil rate band of residence use IHT435. This will provide proper use of the IHT residence nil rate band.

How Much is RNRB?

It started in 2017 at £100,000 and has risen to £175,000 by 2020. This was frozen by the government until 2030. This has severely impacted the nil rate band inheritance tax planning.

Couples or civil partners can combine their RNRB allowances, reaching up to £350,000, provided both are eligible. Add the basic IHT nil rate band, and it will amount to up to £1 million tax-free. This combines the nil rate band of residence as well as the nil rate band.

The value of the nil rate band that the resident is allowed depends on the worth of the house. In cases where the house value is less than £175,000, the amount of RNRB relates to the house value. The lower amount of the IHT residence nil rate band is capped.

How the RNRB Works?

The residence nil rate band decreases the taxable estate. After the basic nil rate band, HMRC uses it. This is important to estate transfers.

You calculate IHT by subtracting the RNRB. The Residence Nil Rate Band (RNRB) only applies to a person’s home when it is left to children, grandchildren or other direct descendants. It doesn’t cover the whole estate, just the qualifying property.

This allowance can ease the inheritance tax bill on family homes, but it won’t apply in every case; some estates may not qualify. It relieves the tax burden on the nil rate band inheritance tax. The Residence Nil Rate Band (RNRB) helps reduce the inheritance tax liability on homes passed to direct descendants, but it does not make estates completely free of tax.

Recent Updates on Resident Nil Rate Band

Recent budgets have frozen the thresholds for inheritance tax, including the Residence Nil Rate Band (RNRB). The RNRB is fixed at £175,000 until 2030. The IHT nil rate band is £325,000. The residence nil rate band is beneficial, but it comes under the inflation impact. As the inflation will rise, the threshold is fixed till 2030. IHT nil rate band rules can be changed. Wills should also be reviewed regularly, according to advisors. Keep checking HMRC for the latest updates.

Bottom Line

The residence nil rate band is a relief with major help for family homes. It is an addition to the nil rate band inheritance allowances. The RNRB is used by families to pay less IHT. Know the qualifications and regulations. Arrange a plan to make the main residence nil rate band maximise the benefit. This can help ensure successors inherit more..

Consult an expert in your case. A big difference can be made by the resident nil rate band. It safeguards the family estate from high IHT.

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Disclaimer: The information about the residence nil rate band provided in this blog includes text and graphics of a general nature. It does not intend to disregard any of the professional advice.