The New Residents Nil Rate Band (RNRB) November 2020
What is it??
The Residence Nil Rate Band was introduced in 2017 at a level of £100k and increased yearly over the last 4 years to give a maximum level of £175k where we are today In 2021 the level will be indexed in line with the consumer price index (CPI)
An estate will be entitled to the additional RNRB if:
- You own a home, or share of one so that it is included in your estate.
- Your direct descendants such as your children or grandchildren inherit the home or a share of it. Direct descendants inherit property when they become:
* Absolutely entitled to it or
* Beneficially entitled to a qualifying interest in possession in the property. (i.e. a Trust)
- The value of your estate is not more than £2 million. For estates valued at more than £2 million, the RNRB (and any transferred RNRB) will be gradually tapered away.
An estate will also be entitled to the RNRB when the individual has downsized to a less valuable home or sold or given away their home after the 7th July 2015.
The RNRB only applies to one home where it’s both:
- Included in the deceased estate on death, to be directed by their will/intestacy laws or joint ownership.
- The property was lived in at some stage by the deceased before their death.
If the deceased owned more than one home, the personal representative can nominate which one should qualify for the RNRB.
The home doesn’t have to be your main residence at the time of death, but it must have been lived in, or owned for a minimum period. It can be any property that the deceased lived in as long as it is included in their estate on death. A property that the deceased owned, but never lived in, such as buy-to-let properties, will not be eligible for the RNRB.
The RNRB only applies to the estate of a person who died. It does not apply to gifts or other transfers made during your lifetime. This includes gifts that become taxable because they’ve been made within 7 years of the donor’s deat
Residents Nil Rate Band Tapering
The RNRB will be tapered where the net estate exceeds £2m at a rate of £1 withdrawn for every £2 of value over the £2m. So, for example, if a married couple’s estate is valued at £2700,000 there will be no additional RNRB to claim.
If widowed, then in a similar manner as the transfer of the Nil Rate Band, when possible they will be able to transfer an unused RNRB in certain circumstances.
The initial reaction to the introduction of the RNRB feared that trusts would not be suitable. However, this is not the case. It has now been confirmed (and notably by STEP and the Counsel Opinion), that beneficiaries for some trusts will still be able to claim the RNRB.
Of course, in many cases, clients are recommended Discretionary Trust(s) to receive some or all of their estate on death. No single beneficiary has a qualifying interest in such a trust and therefore the RNRB will not be obtained.
However utilising Discretionary Trusts still provides the maximum protection of a client’s assets on death, so we would still want to recommend using them when appropriate.
So, accepting Discretionary Trusts are the best advice to provide the maximum protection to then claim the additional RNRB, there are 2 options available, assuming lineal descendants exist.
- Work can be considered post-death by the trustees, within 2 years of the death to potentially create an Interest in Possession in favour of the qualifying beneficiary (ies)
- Establish a Will with a legacy to the NRB and RNRB Discretionary Trust to receive the NRB & RNRB. The Will would need to refer to this trust. This trust will allow the RNRB to be acquired within a specified period from the death of the settlor. It ensures that if the trustees take no action at all the RNRB will not be wasted, assuming there were lineal descendants.
This second option is what all our clients are recommended as part of our process to ensure the RNRB is never lost if lineal descendants exit. This also highlights the importance that when choosing your Executors and Trustees they understand their roles and responsibilities.
It is always our best advice to recommend naming professional Trustees and Executors to ensure your planning is managed correctly.
For more information please visit on how Strategic Wills can help you visit our website at www.strategicwills.co.uk or call me on 01249 704863
Information provided by Countrywide Tax & Trust Corporation who Strategic Wills works in association with.