Residence Nil Rate Band: Understanding the Requirements for Transferability

When it comes to inheritance tax (IHT), there are two types of allowances. These are the nil rate band (NRB) and the residence nil rate band (RNRB). For the 2018/2019 tax year, the NRB is a fixed amount of £325,000. But, the RNRB works slightly differently.

The RNRB allowance during the 2018/2019 tax year is a maximum of £125,000. This figure rises to £150,000 during the 2019/2020 tax year and finally increases to £175,000 during the 2020/2021 tax year. While both of these are transferable, the residential nil rate band comes with its own set of unique conditions.

At Newnham & Son, we’re dedicated to giving our clients all the information they need to make the best financial decisions possible. With this in mind, we’ve created this article outlining the requirements for transferability.

Residence Nil Rate Band Explained

The RNRB is effective if the deceased owned a property at death which his or her lineal descendants inherit. This could be relevant to children, stepchildren, and in some cases grandchildren. This allowance was only made effective on or after the 6th April 2017.

With the above in mind, an individual or couple without a child doesn’t have the same advantages. Additionally, if your partner leaves their part of their estate to their child and the child isn’t legally yours, you also won’t benefit from RNRB.

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The Requirements for Transferability

A person can only transfer a residence nil rate band to their spouse once they pass away. This is only applicable if the spouse who passes isn’t entitled to a residential nil rate band or is but only uses part of it.

Let’s take John as an example. John has a wife, Jane, and two kids. He owns 50% of his home and his wife owns the other half. John passes away and leaves his 50% to his wife. Because he didn’t leave it to his children, his estate isn’t entitled to an RNBR.

When Jane passes, she leaves the entire estate to her children. By doing so, her estate is entitled to an RNBR. But, because John didn’t use any of his RNBR, her estate is also entitled to her husband’s RNBR. With this in mind, if Jane passes before the end of the 2018/2019 tax year, her RNBR is £125,000 as well as her husband’s £125,000 RNBR, making it £300,000. This applies even if John passed in a tax year when the RNBR was worth less.

RNBR Conditions

While calculating an RNBR is simple, there are some conditions. The worth of an RNBR is not an absolute amount. This means that it can vary depending on whether or not a person uses part of their RNBR. In the example above, John left 100% of his RNBR but, if he’d used some of it, Jane’s RNBR would be worth 100% of hers plus whatever John would have leftover.

Additionally, if John passed away before the introduction of the legislation i.e. before the 6th April 2017, his partner Jane would automatically receive an extra 100% of her late spouse’s RNBR. Residence nil rate bands also come with a cap. This means that if the person owns a property worth £100,000, the maximum amount the RNBR would be worth is £100,000.

Making a Claim

Transferring an unused residence nil rate band doesn’t happen automatically. To do so, you must claim it using an IHT436 form. You also have to make this claim within the 2-year time limit.

Your best option is to examine your will with a trained professional to ensure that your family can claim the maximum RNBR. At Newnham & Son, we know everything there is to know about inheritance tax laws and that includes RNBR transferability requirements.

Contact us today to find out more about how we can advise you on your best options so that your family isn’t burdened with financial instability.