Many people of a certain age are worried about their inheritance tax position but since the introduction of the Residential Nil Rate Band (RNRB), for homeowners, this position has become vastly better yet more complex.
The Transferable RNRB was brought in by the government in April 2017 as a slight-of-hand way to bring the joint Inheritance Tax Nil Rate Band for homeowners up to £1 Million. It is available for surviving spouse deaths on or after 6thApril 2017, with the current RNRB being £125,000 for the 2018/19 tax year, increasing to £175,000 for the 2020/21 tax year.
If the RNRB has not been fully used within the estate of the individual who was first to die from a married couple or civil partnership, then the unused part can be transferred to the surviving spouse or civil partner. It does not matter when the first death occurred, as long as the second death is on or after 6thApril 2017.
The amount of the RNRB that can be transferred to the surviving spouse is expressed as a percentage which cannot exceed 100% (similar to the standard nil rate band). For example, if the first death occurs before 6 April 2017, there was no RNRB at the time so none could have been used. Therefore, the amount of the transferable RNRB will be 100% of the RNRB in force at the later death of the surviving spouse or civil partner.
If the surviving spouse passes away in 2018/19, and assuming all other conditions for the RNRB are satisfied, they will receive their own RNRB of £125,000 and the transferred RNRB of 100% of £125,000. Therefore, they would have a total of £250,000 of RNRB to set against their estate.
One point to be aware of is that the amount of transferrable RNRB from the death of the first spouse will be subject to tapering provisions. Where the value of the estate after liabilities exceeded £2 million, then the transferrable RNRB is tapered by £1 for every £2 in excess of £2 million. As such, it is possible that the transferrable RNRB can be tapered to nil.
