Frequently Asked Questions

Residential Nil Rate Band

Residential Nil Rate Band

The Residential Nil Rate Band is a new allowance given my HMRC that can in some circumstances reduce the amount of Inheritance Tax (IHT) due on an Estate.

It started as a £100,000 allowance in 2016/17 and by 6th April 2020 it will have increased to £175,000.

This allowance is only available if you are gifting your share of your family home to your “direct descendants” who are typically your children or grandchildren.

If you have a potential Inheritance Tax liability then the type of Will you have can affect how much IHT is due.

For example, if your Will states that you want some (or all) of your assets to go into a Discretionary Trust then you are not gifting your share of the family home to your direct descendants, and instead you are gifting it into a Trust. As such, your Estate will not be able to claim any of the new Residential Nil Rate Band, even if all of the beneficiaries of the Discretionary Trusts are your “direct descendants”.

After 2020 a couple could have a RNRB allowance of £175,000 each, giving them up to £350,000 extra IHT allowance. If they had an IHT problem and a Will with a Discretionary Trust built in, then their Estate could end up paying an extra £140,000 IHT that may have been avoided with a new Will being drafted.

There may be circumstances when you have a potential Inheritance Tax liability but still want to gift some of your assets into a Discretionary Trust but this should only be decided on after you have considered all of the options and implications, after which you can make an informed decision.

It is worth noting that if your Will includes a Protective Property Trust then this type of Trust will not impact on the availability of the RNRB at all as the gift of the property into the Protective Property Trust is ignored for IHT purposes.

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