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Inheritance tax: the main residence allowance

The 2017/18 financial year will see the introduction of the residence nil-rate band (RNRB) for inheritance tax (IHT). The measure will enable owners of residential property to increase their nil-rate band and minimise their exposure to IHT.

What is the main residence nil-rate band?

The RNRB will introduce an additional nil-rate band specifically for individuals who pass on a residential property to direct descendants following their death. An RNRB of £100,000 will be introduced on 6 April 2017, potentially increasing the individual’s nil-rate band to £425,000.

The RNRB will increase over the next 4 tax years:

 

  • 2017/18: £100,000

  • 2018/19: £125,000

  • 2019/20: £150,000

  • 2020/21: £175,000.

From the 2021/22 tax year, the RNRB will increase annually in line with the consumer prices index measure of inflations.

Am I eligible?

Your estate will be eligible for the RNRB if you:

 

  • die on or after 6 April 2017 (though there are some exceptions to this rule)

  • have full or joint ownership of a home

  • transfer the home to your direct descendants

  • have an estate worth less than £2 million

Who are my direct descendants?

You will need to pass on your main residence to any of the following in order to be eligible for the RNRB. These are:

 

  • children and grandchildren

  • spouses and civil partners

  • stepchildren

  • an adopted or foster child

  • children where you are the legal guardian.

What if my estate is worth more than £2 million?

Owning an estate worth more than £2 million will not exclude you from benefitting from the RNRB. Instead, the RNRB will be tapered by £1 for every £2 in excess of the £2 million threshold.

Talk to us

Unsure whether your estate will qualify for the RNRB? Looking for other ways to reduce your exposure to IHT? Our expert team has years of experience in estate and IHT planning.

Contact us on 01628 631 056 or email tracya@knightandcompany.co.uk  to find out more about our personal tax and estate planning services.