Autumn Budget 2018 – IHT: changes to Residence Nil Rate Band (RNRB)

The RNRB is an additional allowance to the nil rate band allowance where residential property is being passed on death, to a direct descendent. The 2018/19 threshold is £125,000. This will rise to £150,000 in 2019/20 and £175,000 in 2020/21.

Where the net value of the estate exceeds £2m, the RNRB threshold is reduced by £1 for every £2 over the limit.

Any unused percentage of RNRB can be transferred to a surviving spouse/civil partner.

The RNRB is also available where an individual downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value up to the available RNRB allowance are passed to direct descendants.

Legislation will be introduced in the 2018/19 Finance Bill to amend the following:

  • s 8FE Inheritance Tax Act (IHTA) 1984 to ensure that the value of any part of a residence that is inherited by an exempt beneficiary is taken into account in determining a person’s lost relievable amount (i.e. the value of the RNRB which has been lost when calculating the downsizing relief)
  • s 8J IHTA 1984 ensures that where residence forms part of a person’s estate immediately before their death as a gift with reservation of benefit, it will only be treated as being inherited by the direct descendent if the property became immediately comprised in the direct descendant’s estate as result of the original gift.

This affects individuals with an estate (including a residence) with total assets above the Inheritance Tax threshold (currently £325,000) who have direct descendants, as well as personal representatives of deceased persons. It also only applies to deaths on or after 29 October 2018.

It is not anticipated that implementing this change will incur any additional IHT or save costs.