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Complete the form below to secure your Continuing Professional Development (CPD) certificate.
Claim your CPD Certificate
Complete the form below to secure your Continuing Professional Development (CPD) certificate.
BR basics series: The Residence Nil Rate Band
It is important to understand the Residence Nil Rate Band in the context of Inheritance Tax (IHT) planning because it can offer an additional estate value threshold to the standard Nil Rate Band, below which IHT is not payable.
Terminology explained
Nil Rate Band (NRB)
The Nil Rate Band is the threshold up to which no IHT is charged on an individual's estate, set at £325,000 for 2024/25. Estates valued up to this amount are taxed at 0% IHT, while the excess is taxed at 40%.
Gift
A gift is the transfer of any asset such as money, property, or shares, where the donor receives nothing of equivalent value in return. Gifts can lead to a reduction in IHT liability if the donor survives for seven years after making the gift. An individual can utilise an annual exemption of £3,000, which allows them to give away this amount each year without any IHT implications.
What is the Residence Nil Rate Band (RNRB)?
The RNRB exempts the first £175,000 per person of a main residence value from IHT, If in a marriage or civil partnership, this equates to £350,000 per couple.
Adding the RNRB to a couple’s nil rate band, this equals £1million of exempted Nil Rate Bands per couple. If the couple’s estate is worth less than £1 million and their full NRB and RNRB is available, there is no liability to IHT.
In order for RNRB to be claimable, the residential property must be left to direct decedents.
The RNRB will be reduced by a rate of £1 for every £2 the value of the estate exceeds £2 million.
Where the value of an estate exceeds £2 million pounds, the RNRB will be tapered away at a rate of £1 for every £2, reducing the available allowance to nil at £2.7 million.
Unused RNRB can be passed from one partner to the other provided they are married or in a civil partnership. It’s the unused percentage of the RNRB that’s transferred, not the unused amount.
When someone has sold, given away or downsized to a less valuable home before they die, their estate may be able to get an extra IHT threshold. This is known as a downsizing addition.
BR qualifying investments and the RNRB
If they are held at the date of death, BR qualifying investments remain part of the estate value calculation for the purposes of the RNRB.
Gifts and RNRB
When a gift is made during the transferor’s lifetime that is not covered by normal gifting exemptions, it is known as a Potentially Exempt Transfer (PET). If during the seven years post the gits, the transferer dies, it will become a failed PET.
The value of the net estate does not include the value of any failed PET for RNRB purposes.
Take a look at how the RNRB and Business Relief interact with Jenny’s estate planning
> Jenny has an estate valued at £2.5 million including a house with a value of £950,000. Jenny wants to make her estate more tax efficient so that her two sons, and her sister Sally, will receive more of its value on her death.
> To reclaim the full RNRB, she invests in £500,000 of BR qualifying shares and after holding them for the two-year minimum period, gifts them to her sister, taking her estate value down to £2 million.
> Jenny dies only two and a half years later, as a result, the gift becomes a failed PET. However, the value of the failed PET is not added back into Jenny's estate
> As the BR qualifying shares are retained by Sally until the date of Jenny’s death, they remain BR qualifying, there is no additional IHT due on Jenny’s estate.
----------
Opinions expressed represent the views of the author at the time of publication, are subject to change, and should not be interpreted as investment or tax advice.
Important notice: This article is for investment professionals only. This article is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. No reliance should be made on this content to inform any investment of tax planning decision.
This content contains information that is believed to be accurate at the time of publication but is subject to change without notice. The explanation of all of the tax rules set out have been written in accordance with our understanding of the law and interpretation of it at the time of publication.
Whilst care has been taken in compiling this content, no representation or warranty, express or implied, is made by Downing as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
Claim your CPD Certificate
Complete the form below to secure your Continuing Professional Development (CPD) certificate.
BR basics series: The Residence Nil Rate Band
It is important to understand the Residence Nil Rate Band in the context of Inheritance Tax (IHT) planning because it can offer an additional estate value threshold to the standard Nil Rate Band, below which IHT is not payable.
Terminology explained
Nil Rate Band (NRB)
The Nil Rate Band is the threshold up to which no IHT is charged on an individual's estate, set at £325,000 for 2024/25. Estates valued up to this amount are taxed at 0% IHT, while the excess is taxed at 40%.
Gift
A gift is the transfer of any asset such as money, property, or shares, where the donor receives nothing of equivalent value in return. Gifts can lead to a reduction in IHT liability if the donor survives for seven years after making the gift. An individual can utilise an annual exemption of £3,000, which allows them to give away this amount each year without any IHT implications.
What is the Residence Nil Rate Band (RNRB)?
The RNRB exempts the first £175,000 per person of a main residence value from IHT, If in a marriage or civil partnership, this equates to £350,000 per couple.
Adding the RNRB to a couple’s nil rate band, this equals £1million of exempted Nil Rate Bands per couple. If the couple’s estate is worth less than £1 million and their full NRB and RNRB is available, there is no liability to IHT.
In order for RNRB to be claimable, the residential property must be left to direct decedents.
The RNRB will be reduced by a rate of £1 for every £2 the value of the estate exceeds £2 million.
Where the value of an estate exceeds £2 million pounds, the RNRB will be tapered away at a rate of £1 for every £2, reducing the available allowance to nil at £2.7 million.
Unused RNRB can be passed from one partner to the other provided they are married or in a civil partnership. It’s the unused percentage of the RNRB that’s transferred, not the unused amount.
When someone has sold, given away or downsized to a less valuable home before they die, their estate may be able to get an extra IHT threshold. This is known as a downsizing addition.
BR qualifying investments and the RNRB
If they are held at the date of death, BR qualifying investments remain part of the estate value calculation for the purposes of the RNRB.
Gifts and RNRB
When a gift is made during the transferor’s lifetime that is not covered by normal gifting exemptions, it is known as a Potentially Exempt Transfer (PET). If during the seven years post the gits, the transferer dies, it will become a failed PET.
The value of the net estate does not include the value of any failed PET for RNRB purposes.
Take a look at how the RNRB and Business Relief interact with Jenny’s estate planning
> Jenny has an estate valued at £2.5 million including a house with a value of £950,000. Jenny wants to make her estate more tax efficient so that her two sons, and her sister Sally, will receive more of its value on her death.
> To reclaim the full RNRB, she invests in £500,000 of BR qualifying shares and after holding them for the two-year minimum period, gifts them to her sister, taking her estate value down to £2 million.
> Jenny dies only two and a half years later, as a result, the gift becomes a failed PET. However, the value of the failed PET is not added back into Jenny's estate
> As the BR qualifying shares are retained by Sally until the date of Jenny’s death, they remain BR qualifying, there is no additional IHT due on Jenny’s estate.
----------
Opinions expressed represent the views of the author at the time of publication, are subject to change, and should not be interpreted as investment or tax advice.
Important notice: This article is for investment professionals only. This article is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. No reliance should be made on this content to inform any investment of tax planning decision.
This content contains information that is believed to be accurate at the time of publication but is subject to change without notice. The explanation of all of the tax rules set out have been written in accordance with our understanding of the law and interpretation of it at the time of publication.
Whilst care has been taken in compiling this content, no representation or warranty, express or implied, is made by Downing as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
Claim your CPD Certificate
Complete the form below to secure your Continuing Professional Development (CPD) certificate.
Claim your CPD Certificate
Complete the form below to secure your Continuing Professional Development (CPD) certificate.
Claim your CPD Certificate
Complete the form below to secure your Continuing Professional Development (CPD) certificate.
Claim your CPD Certificate
Complete the form below to secure your Continuing Professional Development (CPD) certificate.
Terminology explained
Nil Rate Band (NRB)
The Nil Rate Band is the threshold up to which no IHT is charged on an individual's estate, set at £325,000 for 2024/25. Estates valued up to this amount are taxed at 0% IHT, while the excess is taxed at 40%.
Gift
A gift is the transfer of any asset such as money, property, or shares, where the donor receives nothing of equivalent value in return. Gifts can lead to a reduction in IHT liability if the donor survives for seven years after making the gift. An individual can utilise an annual exemption of £3,000, which allows them to give away this amount each year without any IHT implications.
What is the Residence Nil Rate Band (RNRB)?
The RNRB exempts the first £175,000 per person of a main residence value from IHT, If in a marriage or civil partnership, this equates to £350,000 per couple.
Adding the RNRB to a couple’s nil rate band, this equals £1million of exempted Nil Rate Bands per couple. If the couple’s estate is worth less than £1 million and their full NRB and RNRB is available, there is no liability to IHT.
In order for RNRB to be claimable, the residential property must be left to direct decedents.
The RNRB will be reduced by a rate of £1 for every £2 the value of the estate exceeds £2 million.
Where the value of an estate exceeds £2 million pounds, the RNRB will be tapered away at a rate of £1 for every £2, reducing the available allowance to nil at £2.7 million.
Unused RNRB can be passed from one partner to the other provided they are married or in a civil partnership. It’s the unused percentage of the RNRB that’s transferred, not the unused amount.
When someone has sold, given away or downsized to a less valuable home before they die, their estate may be able to get an extra IHT threshold. This is known as a downsizing addition.
BR qualifying investments and the RNRB
If they are held at the date of death, BR qualifying investments remain part of the estate value calculation for the purposes of the RNRB.
Gifts and RNRB
When a gift is made during the transferor’s lifetime that is not covered by normal gifting exemptions, it is known as a Potentially Exempt Transfer (PET). If during the seven years post the gits, the transferer dies, it will become a failed PET.
The value of the net estate does not include the value of any failed PET for RNRB purposes.
Take a look at how the RNRB and Business Relief interact with Jenny’s estate planning
> Jenny has an estate valued at £2.5 million including a house with a value of £950,000. Jenny wants to make her estate more tax efficient so that her two sons, and her sister Sally, will receive more of its value on her death.
> To reclaim the full RNRB, she invests in £500,000 of BR qualifying shares and after holding them for the two-year minimum period, gifts them to her sister, taking her estate value down to £2 million.
> Jenny dies only two and a half years later, as a result, the gift becomes a failed PET. However, the value of the failed PET is not added back into Jenny's estate
> As the BR qualifying shares are retained by Sally until the date of Jenny’s death, they remain BR qualifying, there is no additional IHT due on Jenny’s estate.
----------
Opinions expressed represent the views of the author at the time of publication, are subject to change, and should not be interpreted as investment or tax advice.
Important notice: This article is for investment professionals only. This article is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. No reliance should be made on this content to inform any investment of tax planning decision.
This content contains information that is believed to be accurate at the time of publication but is subject to change without notice. The explanation of all of the tax rules set out have been written in accordance with our understanding of the law and interpretation of it at the time of publication.
Whilst care has been taken in compiling this content, no representation or warranty, express or implied, is made by Downing as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
Claim your CPD Certificate
Complete the form below to secure your Continuing Professional Development (CPD) certificate.
Terminology explained
Nil Rate Band (NRB)
The Nil Rate Band is the threshold up to which no IHT is charged on an individual's estate, set at £325,000 for 2024/25. Estates valued up to this amount are taxed at 0% IHT, while the excess is taxed at 40%.
Gift
A gift is the transfer of any asset such as money, property, or shares, where the donor receives nothing of equivalent value in return. Gifts can lead to a reduction in IHT liability if the donor survives for seven years after making the gift. An individual can utilise an annual exemption of £3,000, which allows them to give away this amount each year without any IHT implications.
What is the Residence Nil Rate Band (RNRB)?
The RNRB exempts the first £175,000 per person of a main residence value from IHT, If in a marriage or civil partnership, this equates to £350,000 per couple.
Adding the RNRB to a couple’s nil rate band, this equals £1million of exempted Nil Rate Bands per couple. If the couple’s estate is worth less than £1 million and their full NRB and RNRB is available, there is no liability to IHT.
In order for RNRB to be claimable, the residential property must be left to direct decedents.
The RNRB will be reduced by a rate of £1 for every £2 the value of the estate exceeds £2 million.
Where the value of an estate exceeds £2 million pounds, the RNRB will be tapered away at a rate of £1 for every £2, reducing the available allowance to nil at £2.7 million.
Unused RNRB can be passed from one partner to the other provided they are married or in a civil partnership. It’s the unused percentage of the RNRB that’s transferred, not the unused amount.
When someone has sold, given away or downsized to a less valuable home before they die, their estate may be able to get an extra IHT threshold. This is known as a downsizing addition.
BR qualifying investments and the RNRB
If they are held at the date of death, BR qualifying investments remain part of the estate value calculation for the purposes of the RNRB.
Gifts and RNRB
When a gift is made during the transferor’s lifetime that is not covered by normal gifting exemptions, it is known as a Potentially Exempt Transfer (PET). If during the seven years post the gits, the transferer dies, it will become a failed PET.
The value of the net estate does not include the value of any failed PET for RNRB purposes.
Take a look at how the RNRB and Business Relief interact with Jenny’s estate planning
> Jenny has an estate valued at £2.5 million including a house with a value of £950,000. Jenny wants to make her estate more tax efficient so that her two sons, and her sister Sally, will receive more of its value on her death.
> To reclaim the full RNRB, she invests in £500,000 of BR qualifying shares and after holding them for the two-year minimum period, gifts them to her sister, taking her estate value down to £2 million.
> Jenny dies only two and a half years later, as a result, the gift becomes a failed PET. However, the value of the failed PET is not added back into Jenny's estate
> As the BR qualifying shares are retained by Sally until the date of Jenny’s death, they remain BR qualifying, there is no additional IHT due on Jenny’s estate.
----------
Opinions expressed represent the views of the author at the time of publication, are subject to change, and should not be interpreted as investment or tax advice.
Important notice: This article is for investment professionals only. This article is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. No reliance should be made on this content to inform any investment of tax planning decision.
This content contains information that is believed to be accurate at the time of publication but is subject to change without notice. The explanation of all of the tax rules set out have been written in accordance with our understanding of the law and interpretation of it at the time of publication.
Whilst care has been taken in compiling this content, no representation or warranty, express or implied, is made by Downing as to its accuracy or completeness, including for external sources (which may have been used) which have not been verified.
Claim your CPD Certificate
Complete the form below to secure your Continuing Professional Development (CPD) certificate.
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