New RNRB Explained
Does The New RNRB Affect You?
Back in April of this year, new legislation was introduced which may result in a reduction of the amount of Inheritance Tax (IHT) your estate pays when you die. If at that time your estate is taxable for inheritance tax purposes.
What is the Residential Nil Rate Band (RNRB)?
The RNRB know as the Residential Nil Rate Allowance or (RNRA) as it is referred to in some publications. This is a new tax allowance in addition to the existing Nil Rate Band (NRB) Inheritance Tax allowance.
The NRB allows you to leave up to £325,000 per person to any other than your spouse, civil partner or charity without paying IHT.
RNRB Phasing In
The RNRB is being introduced in stages over the next 4 years. In the first year (2017/2018) the allowance is £100,000 per person. The allowance then increases at £25,000 each year for the next 3 years.
So from 2020/2021, the allowance is £175,000 per person and therefore for a married couple the allowance will be £350,000, potentially a further £140,000 in IHT mitigated.
What does this mean for you?
The RNRB is a valuable allowance, if claimed in the first year this could mean a reduction in Inheritance Tax (IHT) of £40,000 per person rising to £70,000 per person by year four.
How do you qualify for the RNRB?
To qualify for the RNRB you must first have at the date of your death or have previously had a house that you have lived in at some point prior (“the Property”). Secondly, you must leave all or sufficient part of the Property to a linear descendant absolutely or leave such a relative an interest in possession in the property. Linear descendants means Children, Stepchildren, Adopted children, Foster children, Grandchildren, and Great-grandchildren.
Is my existing estate planning correct?
Discretionary Trusts are the most effective way to protect your estate for your intended beneficiaries and as far as possible ensure your hard-earned wealth remains within your family. However, to qualify for the RNRB these Trusts need to be modified to create the Interest in Possession for the relevant beneficiaries.
If you are planning on making a new will it is worth speaking with your professional to go over your personal circumstances and options available to you.
There are however two existing sections in legislation that can allow professionals to change a Will by Variation that could be used after your death to effectively change your Will and Trusts. To allow them to qualify for the RNRB and maximise tax reliefs. (Section 142.IHTA. 1984 Deed of Variation) and distribution or appointment from Trusts (Section 144.IHTA.1984).