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Inheritance

Residence nil-rate band (RNRB) calculator

Everyone has currently £325,000 of their total estate free of inheritance tax (the nil-rate band – NRB), provided this allowance hasn’t been used when making gifts, for example, or settling assets into trust. Your estate is the sum of your savings, investments, the market value of the house you live in and other assets. Usually pensions are ignored.

But there is a new inheritance tax allowance – the residential nil-rate band (RNRB) – which can be claimed by the estates of people who die after 6 April 2017.

Please note that inheritance tax is a complicated topic and this information has been prepared in good faith and is based on the understanding and interpretation of current law. If in doubt seek advice.

Residence Nil Rate Band – RNRB

Additional main Residence NRB (RNRB) applies if deceased’s interest in a residential property, which has been their main home at some point, is left to direct descendants on death.

Direct descendant of the deceased will be;

  • A child
  • Includes step, adopted or foster child and
  • Their direct descendants

Note – If no children RNRB does not apply

RNRB is also available where the residential property is inherited by someone who is:

  • A spouse or civil partner of a direct descendant at the time of the deceased’s death
  • A surviving spouse or civil partner of a direct descendant who has not remarried at the time of the deceased’s death.

Main Points of RNRB

  • Value of RNRB will be lower of net value of a qualifying interest in the property or maximum amount of the band.
  • It would appear that a qualifying interest is the net amount after an outstanding mortgage has been deducted.
  • Maximum amount will be phased in over 4 years;
  • £100,000 for 2017/8
    £125,000 for 2018/9
    £150,000 for 2019/20
    £175,000 for 2020/21

  • Will then increase by CPI from 2021
  • Limited to one property but PR’s (Personal representatives) will be able to nominate which one should qualify if there is more than one in the estate
  • Unused amount cannot be carried across to another qualifying property
  • Property which has never been a residence of the deceased will not qualify
  • Unused proportion of RNRB will be transferable to surviving spouse or civil partner where survivor dies on or after 6 April 2017 regardless when the first spouse died.
  • Where first death occurred before 6 April 2017 the RNRB is deemed to be £100,000
  • Proposed legislation means that irrespective of what actually happened no part of this RNRB will be deemed to have been used.
  • This means the surviving spouse’s estate will always have a 100% uplift
  • This is unless the estate of the first to die exceeded the taper threshold of £2m when the deemed £100,000 RNRB would be reduced on a 2:1 basis over £2m
  • Claim made as per current transferable nil rate band
  • The RNRB will always be used before the standard NRB
  • If “net” value of the estate is above £2m the RNRB will be reduced by £1 for every £2 above that amount.
  • Finance Act 2016 introduced legislation that where all or part of the RNRB might have been lost because the deceased had downsized to own a residence on or after 8 July 2015, the RNRB will still be available provided the deceased left that smaller residence or equivalent assets to direct descendants.

Example

  • James dies in July 2019 – the NRB is £325,000 and RNRB is £150,000
  • His share in property of £175,000 is left to his wife, Joan, as is the rest of his estate valued at £325,000

  • Joan dies in March 2021 with estate valued at £1 million, including property worth £350,000
  • Her estate is left to their daughters and so will benefit from NRB of £650,000 plus RNRB’s of £350,000 (Joan’s £1275,000 plus 100% uplift to be claimed on behalf of James)
  • No IHT due

As previously mentioned if in doubt seek advice.

Pensions boom ‘is coming to an end’

A new study by the Institute of Fiscal Studies (IFS) has warned that  people born in the ’60s and ’70s are likely to become the first generation since World War II who will be worse off than their parents in retirement.

The finding is due to the flower power generation being less likely to own a property, having smaller state and private pensions, and having no more savings or income than their parents. The IFS study attributes this to:

  • ‘Lavish’ spending that eroded this generation’s ability to save
  • The end of final salary pension schemes
  • Rising property prices making it harder to get on the housing ladder

As a result, the IFS says that the only hope this cohort has of being more financially secure is tied to the wealth of their parents, as 70% of those born in the late ’70s expecting to receive an inheritance. The study therefore concluded that only those who are left a large cash or property inheritance from their parents or grandparents can expect to enjoy a more comfortable retirement than their forebears.

But any inheritance is at risk of being lower than expected due to the rising costs of old-age. Labour estimates the cost of retirement and old-age care to be £150,000, and while the government disputes this figure, reforms to the state pension system are underway.

For advice on your retirement, please contact us online or by telephone on 01926 658387.

Planning your inheritance

inheritance tax planning For the 2012/2013 tax year , the individual allowance is £325,000 (or £650,000 for married couples and civil partners). However, planning your inheritance can help you access the annual exemptions and allowances that are available to you, in advance. For example, regular gifts can be made from income without liability, and small gifts can be made annually from capital to children and for weddings. Larger sums can become exempt if the donor survives seven years. Alternatively, you can set up the funding for beneficiaries to pay the IHT bill via some form of insurance policy, so they don’t have to sell items of sentimental value.