An additional Residence Nil Rate Band (RNRB) will be available for deaths on or after 6th April 2017 where a residence or interest in a residence is ‘closely inherited’. This means that it must pass to a lineal descendant or to spouse/civil partner of a lineal descendant or to a surviving spouse/civil partner of a lineal descendent who predeceased the deceased provided that the surviving spouse/civil partner has not remarried.
Property left on certain types of trusts will be treated as ‘inherited’ (i.e a disposition effected by will or otherwise). These trusts include
- Immediate Post Death Interest (IPDI) trusts
- Disabled persons trusts
- Bereaved minor or bereaved young persons trust
Whilst a discretionary settlement is not included in the above list, even if all the beneficiaries are lineal descendants, an appointment made within 2 years of death to the lineal descendants can be read back into the will and so trustees could retrospectively secure the RNRB for the estate.
How much is the RNRB?
The RNRB will be £100,000 in 2017/18 increasing by £25,000 each year until it reaches £175,000 is 2020/2021.
What is a ‘residence’?
This is defined as a dwelling house which has been the deceased’s residence at some time during the period of ownership. There is no requirements that it is the deceased’s main residence or a UK property, a holiday home could qualify. However, a property such as a buy-to-let which was never a residence would not qualify. The RNRB is limited to one residential property only.
Is the RNRB transferrable?
Any unused RNRB can be transferred to a surviving spouse or civil partner. As with the existing transferred nil rate band, the bought forward RNRB has to be claimed.
What about Lifetime Transfers?
The RNRB is only available on the death estate and not to lifetime transfers. There is Downsizing draft legislation is the 2016 Finance Bill which looks to deal with a situation where a person disposes of a residential property on or after 8 July 2015 either entirely or by moving to a less valuable property. It’s safe to say that the practical application of these provisions is yet to be borne out.
What does it mean for you?
Ensure your client is clear about how the wish to direct any residence within their estate to beneficiaries, and ideally, lineal descendants if the RNRB is a measure that may impact them.
What do you think about the RNRB & what could the consequences be for your clients? We'd love to hear from you firstname.lastname@example.org