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.
Case Study
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.
On death, Jenny passes her main residence to her two sons. Jenny's estate benefits from the entire RNRB of £175,000.
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