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The new Residence Nil Rate Band

View profile for Elizabeth Young
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As we anticipate the publication of further detailed rules relating to the new Residence Nil Rate Band (RNRB) it is time to consider how to secure the Conservative Party’s long promised million pound exemption from Inheritance Tax (IHT). It was George Osborne (whatever happened to him!) who introduced the concept at the Conservative Party Conference in 2007. Things went a little quiet in the post coalition world only then to re-emerge in the Finance Act (2) 2015 as the Conservatives bathed in their election glory and delivered on at least one of their promises!


From 6th April 2017 I will acquire a RNRB of £100,000.00. This will rise by another £25,000.00 for each year until 2020/2021 when I will achieve my peak additional exemption of £500,000.00 (when combined with my Nil Rate Band) together with Mr Young’s exemption this gives us the magical (if not mythical) £1,000,000.00 of exemption. It will then increase in line with Consumer Prices Index. The Nil Rate Band has remained static since 2009, and will remain the same until at least 2020/2021(in an effort to afford the additional exemption). For those who have run out of fingers to count on that is going to be 11 or 12 years without a rise.

Limitations - Taper

The relief will be reduced for estates which exceed £2,000,000.00 by £1 for every £2 in excess of the limit. So this benefit is aimed at the moderately wealthy blessed with children, and lost for those more than moderately wealthy. With average London House prices being in excess of £500,000.00 (in excess of £1,400,000.00 in Central London) and rising (albeit more slowly than previously) this new exemption may be of limited application.


The RNRB is transferrable to a surviving spouse or civil partner mirroring provisions made for Nil Rate Band. This is the case even for deaths before 6 April 2017.


It is common for retirees to downsize; sometimes this is forced upon those who too unwell to look after themselves in their own homes. What of these downsizers/nursing home residents?….a later proposal to amend the rules was made, and we await the detail which would appear to preserve the RNRB for those individuals who make this choice provided this was after the cut-off date of 8 July 2015 (as long as they leave assets to Lineal Descendants) Anyone who disposed of a residence before this date will not have a RNRB available to them. Should they buy another house?


What advice can we give?

  • Consider, without doing anything too extreme, trying to get the value of the estate down below £2,000,000.00 to avoid sacrificing part of the relief. (Remembering that this level is before deducting reliefs such as APR/BPR)
  • Spouses and civil partners might try and do what they can on the first death to ensure the survivors estate is not swollen beyond this point by leaving assets elsewhere on the first death.
  • We will need to be careful when drafting Wills to ensure that there is a qualifying gift to a lineal descendant remembering that a gift of residue to a discretionary trust would not work, unless trustees exercise a power of appointment to a lineal descendant or into an Immediate Post Death Interest Trust for them.
  • Start a family or try and adopt one of your nieces or nephews!

An unexpected discrimination

From a personal perspective, and as a person ‘without issue’, I perceive a discriminatory theme to the exemption from the outset. The new rules discriminate against those of us without offspring (I don’t think I will be able to elect to benefit my Springer Spaniel) or those whose offspring may have died before them? I do have the advantage of being a home owner and therefore may acquire an exemption, but my heirs may face an additional tax levy which seems unfair. Perhaps I ought to start a family – I had better warn Mr Young !

Watch for further articles on how the RNRB applies to trusts and how the new relief interacts with APR and BPR!