The Residence Nil Rate Band

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The new residence nil rate band became effective from 6th April 2017.

The residence nil rate band is in addition to the standard nil rate band, which will remain frozen at £325,000 until April 2021.  The additional amount will be phased in starting at £100,000 and increasing by £25,000 a year until it reaches £175,000 in April 2020.  Just like the standard nil rate band, the residence nil rate band will be transferable between spouses and civil partners on death.

To benefit from this additional amount the family home must pass to direct descendants and to be entitled to the full amount the value of individual estates must be below £2m. 

Beyond this, the allowance will be tapered, and lost altogether once the value exceeds £2.2m (reduced by £1 for every £2 that the deceased’s estate exceeds £2m).  This will rise to assets of £2.35m in 2020/21 when the full £175,000 allowance kicks in.

The property doesn’t necessarily have to pass directly to the descendants to qualify, the residence nil rate band will still be available if the property is left via certain types of trust.  It is also possible to still qualify even if a property is not owned at the date of death. 

There are rules designed to help those who have downsized or may have sold their property and moved into residential care or with a relative since 8th July 2015.  Any replacement property and/or assets must form part of the estate and pass to descendants to qualify.  Once in the estate, the property does not literally have to be transferred to the children or grandchildren, the executors may choose to sell the property and pay out each beneficiary’s share of the house in cash.

It may be an opportune time to rethink how wealth will be passed on to get the greatest benefit from the additional tax free amount.  It may be appropriate to revisit your Wills to determine what happens to the family home on death and start making some lifetime gifts if you will be affected by tapering.

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