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Technical View

Technical View

Welcome to this month’s Technical View where we look at the introduction of the residence nil rate band (RNRB) from April 2017 as announced in the Summer Budget on 8 July this year. 

Technical View aims to answer queries received by you, as a financial adviser for your use when you meet clients in similar scenarios. We hope that this provides useful, topical and valuable information.

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The RNRB will be in addition to the standard nil rate band currently set at £325,000 (and it will remain at that level until 2020/21 tax year) and will apply to individuals who pass their ‘qualifying residence’ on their death by Will, intestacy or via the rule of survivorship to a direct descendant.

What you need to know


Below are the key points you will need to know when talking to your clients and professional connections about the RNRB.

1.     Qualifying residence

A qualifying residence is a property that has been or is, at the time of death, the deceased’s residence and upon death of the owner this is passed to direct descendants. Where a person has more than one qualifying residence, the personal representatives can elect which one to nominate but any unused nil rate band cannot be carried across to the other property.

It has also been proposed that people will not lose out on their RNRB if they were to downsize to a less valuable property, so long as this too is passed to their direct descendants. The details of how this will work in practice are currently subject to consultation and more information on how this will work will be detailed in next year’s Finance Bill.

This could be particularly useful for spouses or registered civil partners that have more than one qualifying residence. If each property is held in a singular name then each RNRB can be used.

2.     Direct Descendants

Direct descendants are classified as follows:

  • Child/children (including step, adopted and foster children) and their descendants
  • Grandchild/Grandchildren
  • Those under guardianship/special guardianship.
  • Other direct lineal descendants

It should also be noted that if the property is left via a Bare Trust, a trust with a qualifying life interest trust for disabled minors, a trust for bereaved minors or an 18-25 trust to a descendant of the settlor then it will also qualify for the RNRB.

3.     The additional allowance

The RNRB will be phased in from 6 April 2017 to 6 April 2020 as follows:

  • £100,000 tax year 2017/18
  • £125,000 tax year 2018/19
  • £150,000 tax year 2019/20
  • £175,000 tax year 2020/21 (this value will then increase each year in line with CPI)


4.     Estates in excess of £2,000,000

Where the deceased’s net estate exceeds £2,000,000, the RNRB will be reduced by £1 for every £2 over this value. This means that for deaths occurring after 6 April 2020, there will be no RNRB for net adjusted estates that are worth in excess of £2.35m or £2.7m where the spouse's RNRB has been transferred in its entirety to the surviving spouse. The taper threshold will too increase in line with CPI along with the RNRB from tax year beginning 6 April 2021.

5.     Transferring the allowance

Just like the standard nil rate band, the RNRB is transferrable between spouses and registered civil partners if unused on first death. The calculation is the same used for the standard nil rate band, i.e. the percentage unused on first death of the nil rate band or RNRB is applied to uplift the rate in force at the time of the second death. The personal representatives can make the claim on the second death on or after 6 April 2017, no matter when the first death occurs.

Where the first death occurs before 6 April 2017, the RNRB is deemed to be £100,000 and unused. This means that the estate of the surviving spouse will have 100% uplift in the transferrable RNRB irrespective of  whether the first to die left a qualifying interest of property to their direct descendants. Where the estate of the first to die is in excess of the £2 million taper limit, the loss of the RNRB for £1 for every £2 over this threshold will apply.

If both deaths occur before 6 April 2017 then no RNRB can be used against either estate.

Potential planning opportunities

  1. Consideration should be given to potentially restructuring the estate of clients who have two qualifying properties to allow properties to be passed on first death to the children and to prevent a RNRB from being wasted.

  2. Lifetime gifts of property should be given proper consideration before exercising them as the RNRB will not apply to gifts given during lifetime.

  3. For those clients who will not benefit from the new RNRB (those with property but who do not have direct descendants to whom to pass this to), there will be an additional need for these clients to seek planning for any inheritance tax that could be due. The standard nil rate band we know is now fixed at £325,000 until 2021, for those who have estates in excess of this (or £650,000 if married or in a registered civil partnership), they will need more assistance in arranging their financial affairs.

Annual reviews of each client’s personal circumstances provide the opportunity to review existing arrangements in light of new legislation introduced or due to be brought in following the Summer Budget and as a result of the outcome of HM Treasury consultations.

Hopefully this edition has provided some clarity on the potential changes to inheritance tax announced in the Summer Budget. If you have further queries on the content of this edition or other technical queries then please contact the Technical e-helpdesk at technical@sanlam.co.uk.

Date issued: 09.09.15

This note is to be used by Financial Advisers only. It is not intended for onward transmission to a private customer and should not be relied upon by any other person. Sanlam accepts no liability for any action taken or not taken by an individual or firm as a result of the contents of this material. The tax treatments and information contained in this document is based on current tax law and HMRC practice as at August 2015 and may be subject to change in the future. Whilst we have made every effort to ensure the accuracy of this material, we cannot accept responsibility for any consequence (financial or otherwise) arising from relying on it. This document is for information purposes only and should not be treated as advice and independent taxation advice should be always sought.

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