Residence Nil-Rate Band and succession

10 May 2018

Succession planning should always be a priority for land-owners wishing to ensure the protection of their assets for future generations.

As rules and allowances change, it is prudent to review the arrangements you have made periodically, and to seek expert legal advice to keep those arrangements up-to-date in a changing legal landscape.

Take, for example, the Residence Nil-Rate Band (RNRB) which came into force in April 2017. This is an additional allowance for inheritance tax, introduced to supplement the current nil-rate band of £325,000 per person, and is intended to enable the family home to be passed on to the next generation free of inheritance tax.

The impact of this is that, where a person dies and leaves their home to their children or more remote descendants, an additional allowance of a maximum of £125,000 is available to set against the value of that property. This allowance will rise annually in £25,000 increments until 2020 when it will reach £175,000.

The RNRB is transferable between spouses/civil partners giving them combined allowances of up to £1million tax free by April 2020 (provided the family home is valuable enough to make full use of the RNRB). It remains available even if a person downsizes or disposes of the property prior to death, as long as assets of equivalent value pass to those direct descendants instead.

The RNRB is targeted at medium-net worth families, as it is tapers away for estates worth over £2million. For farming families, the additional allowance could be of particular value in bridging the gap between the agricultural value of the farmhouse (which qualifies for Agricultural Property Relief) and the open market value, which would otherwise be taxable.

So, as you can see, the RNRB is one example of how changes to tax rules need careful monitoring. By seeking professional legal advice, you can be assured the planning you have done will remain effective.


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