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03rd January 2020

Residence Nil Rate Band – What if I downsize or move into a care home?

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In 2015 the Government pledged to increase the Inheritance Tax threshold (the Nil Rate Band) to £1 million for a married couple. This resulted in what is known as the ‘Residence Nil Rate Band’. What is the Residence Nil Rate Band (or RNRB)?

For deaths after 6th April 2017, there is an additional Inheritance Tax allowance for individuals who leave their residence to direct descendants or the spouses/civil partners of direct descendants. By April 2020 this extra allowance will be £175,000 per person.

For a married couple/civil partners, if the first to die does not use their RNRB (for example because they leave their estate to the survivor or they die before 6 April 2017) that unused RNRB is transferable and can be claimed on the death of the survivor. This is the case even if the first to die did not own a residence. This means that, on the second death, by April 2020 the survivor’s estate may benefit from a total RNRB of £350,000.

Are there any limitation on the RNRB?

Yes – the allowance is restricted in many ways and proper advice should be taken to ensure that you qualify. The phrases “residence” and “direct descendants” have strict definitions, and certain trusts in your Will may prevent your estate qualifying for the RNRB .

There are other restrictions as well:

  • The RNRB is limited to the net value of the property (after any mortgage).
  • The benefit of the RNRB is taken away from larger estates. If the net estate (ignoring exemptions and reliefs) is more than £2 million, the RNRB will be reduced by £1 for every £2 by which the net estate exceeds the taper threshold.
What if I downsize or move into a care home?

If you downsize or sell-up entirely after 8th July 2015, then you can still benefit from the RNRB, although, again, there are restrictions and complex calculations and options.

Does it matter if the house is currently owned only by one spouse/civil partner?

Whether the house is owned in joint names, or in the sole name of one of the spouses/civil partners can cause an unnecessary loss of some of the tax relief and planning on this is particularly important prior to entering a residential home. .

For more information on the items discussed in this article please contact Tobias Gleed-Owen on 01223 532718 or click here to email Tobias.