Even though we all believed it would be abandoned, the RNRB is now very much with us and we are left struggling to apply it in practice and draft wills that ensure the relief is not lost.
As we all know, the basic idea is to give an additional nil rate band (NRB) for residential property left on death to direct descendants. The legislation (effective as of 6 April 2017) provides for maximum relief of £100,000 for 2017/18 increasing to £175,000 for 2020/21. Thereafter, the maximum increases with inflation, based on the CPI.
There are 2 limitations:
- the amount of the RNRB is limited by reference to residence value closely inherited
- if the value of the estate (assets less liabilities but ignoring reliefs) exceeds £2m, the RNRB is reduced at a rate of £1 for every £2 in excess-plan around this therefore.
Interestingly, “estate” includes exempt gifts on death, assets that qualify for APR/BPR, assets in which the deceased had a qualifying IIP (provided a lineal descendant takes on death) and GROBs. The residence itself can include foreign property and must have been the deceased’s residence at some point during ownership and in the estate at death. The relief is still available if part of the residence passes to descendants and if the deceased vacates to move into care.
But also note that a lifetime gift of property with a reservation of benefit to a descendant will qualify!
Descendants includes issue and bizarrely this encompasses step children, adopted children, foster children, children the deceased acted as a guardian for, spouses and civil partners of issue and widows/widowers (who are not remarried) of predeceased children. Brothers and sisters and nephews and nieces are rather harshly excluded.
Property is inherited on death as a result of:
- the will
- intestacy
- survivorship
- settled property provided the descendant is:
- an IPDI beneficiary
- a disabled person
- a child of the deceased and the trust is a bereaved minors or 18-25 trust
Difficulties arising from wills are relevant property trusts for grandchildren at say age 21 or discretionary trusts of residue-consider rearranging matters by using s142 or s144 IHTA 1984. If the will provides for an IPDI and a discretionary trust thereafter, consider an absolute appointment in the life tenant’s lifetime to a descendant.
The RNRB is transferable in the same way as the NRB and curiously, the first to die need not have owned a residence and for deaths before 6 April 2017, the RNRB will always be transferable. It is irrelevant if they were penniless or owned no property.
The extremely complex downsizing rules (the legislation is a nightmare) provide that if the deceased ceased to own property which would have otherwise qualified, the relief applies if assets of a value up to that of the RNRB are left to descendants. Record keeping is vital therefore.
What was described as a £1m NRB is overly complicated and sadly the losers are taxpayers with no children and those who rent property but own investments/let property.
This is not legal advice; it is intended to provide information of general interest about current legal issues.
