The essentials

Nil Rate Band

• Each person has a current Nil Rate Band (NRB) of £325,000, to set against their estate
• Any lifetime gifts in the seven years prior to death that exceed exemptions are brought back into account and will reduce the Nil Rate Band available
• The transferable Nil Rate Band allows the spouse/civil partner to claim 100% of the current Nil Rate Band, where available, giving them a maximum NRB of £650,000 on second death

Residence Nil Rate Band

The 2015 Finance Act introduced an additional nil rate band for residential property that was a main residence and is passed to direct descendants on their death.

Direct descendants include:

• children
• grandchildren
• stepchildren
• adopted children
• foster children
• children to whom they are appointed as guardian

It also includes spouses/civil partners of any of these people, provided they have not remarried or entered another civil partnership.

The Residence Nil Rate Band (RNRB) came into effect from April 2017 and has gradually increased over the years. The current allowance is £175,000 per person.

There is a tapered withdrawal of the Residence Nil Rate Band for estates with a net value of over £2m – including any assets eligible for IHT relief. The withdrawal rate is £1 for every £2 over this threshold and applies on both first and second deaths. The percentage transferable to the spouse is reduced.

The amount of RNRB that can be claimed is limited to the value of the main residence (or share of it) left to direct descendants, after deduction of any borrowing secured on it.

More to think about

• Downsizing relief  – RNRB can be offset against other assets
• Reliefs and exemptions available on death – suchas agricultural property or business property relief, Trusts and charitable gifts  
• Discounts on jointly owned property
• Calculating the liability – methods to use
• Administration and excepted estates
• Pensions