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20 min read 1 Mar 22
The RNRB is an extra NRB, available in addition to the general NRB if certain qualifying conditions are met. It is available on deaths on or after 6 April 2017. For married couples and civil partners, unused RNRB can be transferred if the surviving spouse or civil partner dies after 5 April 2017 irrespective of when the first of the couple died. Note that ‘transferable RNRB’ is in fact the wrong terminology and instead the correct terminology is the ‘brought forward’ allowance (see section below).
Broadly, RNRB will be available if a person’s estate includes their home and it is left to their children or other direct descendants. The legislation refers to property being ‘closely inherited’. The amount of RNRB available is limited to the value of the home that is left to the direct descendants.
There is no requirement for a claim to be made for RNRB. If the conditions for RNRB are met then it is due automatically. Claims are however required for an entitlement to a brought-forward allowance (see below), or for a downsizing addition (see below).
This broad synopsis highlights areas that are explored below.
Starting on 6 April 2017, the RNRB was phased in over four tax years. The maximum amounts available to an individual are given below:
In Spring Budget 2021 it was announced that the IHT thresholds at 2020/21 levels will be maintained up to and including 2025/26. This maintains the NRB at £325,000, the RNRB at £175,000 and the RNRB taper starting at £2m.
If the RNRB has not been fully utilised on the estate of the first to die of a married couple or civil partnership the unused part can be transferred to the second estate. Where the full entitlement to brought forward RNRB exists, an estate can qualify for a total RNRB as per the table below:
The value of the RNRB for an estate will be the lower of the net value of the interest in the home (after deducting any liabilities such a mortgage) or the maximum amount of the band.
The amount of RNRB that is actually due starts to be withdrawn where the value of the estate immediately before death exceeds the £2m taper threshold.
When calculating IHT due on the estate, the RNRB is deducted from the value of the estate on death before deducting the general NRB. Unlike the general NRB, it does not apply to lifetime transfers made within seven years of the death. Therefore, the RNRB does not reduce the tax payable on lifetime transfers that are chargeable as a result of death. In other words, the RNRB is not taken into account when working out the tax due on the value of chargeable lifetime transfers or failed potentially exempt transfers.
Example showing the RNRB being deducted before the general NRB
Anthony dies in tax year 2022/23 with an estate valued at £490,000 which is left to his children.
Note that £10,000/£325,000 of the NRB remains unused and could be transferred to Anthony’s spouse or civil partner.
Note also that the RNRB applies to the entire estate on death. It is not an exemption or relief on the home itself, but instead reduces the total IHT charge on death.
Example showing that the RNRB is not set off against lifetime gifts
Delilah dies in 2022/23 leaving a £750,000 estate to her granddaughter. She had previously made gifts of £700,000 to her other grandchildren and a nephew within seven years of her death. Delilah’s estate qualifies for RNRB of £175,000 and a NRB of £325,000.
The NRB of £325,000 is applied against the lifetime gifts of £700,000 first meaning that all of the NRB is used up and there is a value of £375,000 on which IHT is due.
The RNRB of £175,000 is available to set against the estate value of £750,000 meaning that the estate value on which IHT is due is £575,000.
After death, when calculating IHT, the order of set off for Nil Rate Bands is therefore as follows:
The definition of ‘estate’ for RNRB purposes is the normal IHT definition
A client’s estate is the aggregate of all the property to which the client is beneficially entitled. The death estate includes trust property in which the client had a qualifying interest in possession (IIP) and any gift with reservation (GWR) property, but does not include excluded property.
A home that is a GWR can qualify. Where property is a GWR, there is no disposal on death as the disposal occurred when the gift was made. For the purposes of RNRB, GWR property is treated as being inherited by a direct descendant if the original gift was made to that person.
David makes a gift of his home to his daughter Victoria, but continues to live in the property rent free until his death. The home is the subject of a GWR, but as the original gift was to Victoria, she is treated as ‘inheriting’ the home for RNRB purposes.
The RNRB tax rules refer to the value of a client’s estate on death as ‘E’. This value takes into account any debts and liabilities but ignores any exemptions or reliefs (e.g. Business Property Relief). This is discussed in the ‘£2m taper threshold’ section.
‘E’ is therefore not the same as “VT” which, in an IHT computation, is the value transferred by the chargeable transfer on the client’s death. Accordingly ‘E’ is not reduced by exemptions and reliefs which reduce the value transferred in an IHT calculation. Also, ‘E’ excludes the value of any CLTs (chargeable lifetime transfers) or failed PETs (potentially exempt transfers) which aggregate with the estate on death because property which has been gifted is not part of the estate immediately before death. This gives rise to planning opportunities – see later section ‘The £2m taper threshold’.
Note that although the general principle is that RNRB applies to a client’s home, the legislation actually refers to the estate including a ‘qualifying residential interest’. For the purposes of this article, we will simply refer to the ‘home’.
For RNRB purposes, a person’s home is any dwelling house they owned, or had owned, and occupied at some stage as their home while they owned it. There is no minimum period of occupation and each case will be decided on its facts
Examples of occupation
A home might simply be a house owned by the deceased that they had been living in. It could also include an apartment that the deceased lived in previously and still owned, but which was rented out at the date of death.
There can only ever be one qualifying home in an estate, but of course it is possible that a client may have more than one property that either is, or has been, their home. In that event the deceased’s legal personal representatives can nominate one, but only one, of those houses.
Where an asset, such as a static caravan or a houseboat, has demonstrably been lived in, it can be accepted as a dwelling-house for RNRB purposes. Each case will depend on its facts.
There is no requirement that the home has to be in the UK but it does have to be within the scope of IHT and it has to be included in the estate. For UK domiciled clients who are subject to IHT on their worldwide assets, it does not matter where the home is located. For non-UK domiciled clients who are subject to IHT only on their assets in the UK, the home must be situated in the UK in order to be within their estate for IHT purposes and hence to be able to qualify for the RNRB.
The home does not have to end up in the hands of the deceased’s direct descendants. An estate could still be eligible for the RNRB if the deceased’s personal representatives sell the home as part of the administration of the estate and pass the sale proceeds to the direct descendants.
Once the direct descendants have inherited the home, there are no restrictions on what they can do with it. An estate will still qualify for the RNRB even if the direct descendants decide to sell the home after they have inherited it.
For RNRB to apply, the home must be ‘closely inherited’. In general this means that the property must be inherited by a child of the deceased, or by a remoter lineal descendant of the deceased (e.g. the grandchild, great grandchild, or other child of a child of a child etc.).
The legislation extends the meaning of ‘child’ to include step-child, foster child and children for whom a person was appointed by a court order as a guardian or special guardian if that appointment took effect when the child was under the age of 18.
The legislation also extends the range of qualifying beneficiaries to a person who
Property passing to the parents, brothers and sisters, nephews and nieces or other non-lineal descendants of the deceased is not ‘closely inherited’.
For RNRB purposes a person ‘inherits’ property if there is a disposal to that person from the deceased, and the home formed part of the deceased’s estate immediately before death.
This may occur by the will, under the law relating to intestacy, or otherwise, for example joint tenancy property passing by survivorship.
Essentially the property must be within the deceased’s estate for IHT purposes immediately before death, and the property then immediately becomes comprised in the beneficiary’s estate for IHT purposes.
The home does not need to be left to the direct descendant as a specific legacy and does not need to be mentioned specifically in a will; for example, it can be inherited as part of the residue of the estate.
Example of a home closely inherited as part of the residue of the estate
The deceased leaves £500,000 to his spouse, and the residue of his estate (including a home) to his children. The home will be closely inherited as it passes directly to his children on his death.
In most cases whether property has been ‘inherited’ for RNRB purposes is straightforward. However, where the home is held in trust (i.e. as settled property), either before or after the deceased’s death, the position is less straightforward.
The home can also be inherited by a direct descendant if it is left to them as a result of amending the deceased’s will by a Deed of Variation.
Complications can arise where the home is held in trust either before or after the deceased’s death.
The home is in trust immediately before the deceased’s death
The home becomes trust property after the deceased’s death
In either case the property is held on trusts for the direct descendant.
Note that you cannot have a bereaved minor’s trust, or an 18-25 trust for a grandchild.
Therefore, direct descendants must become entitled to the home on the death of the deceased and the property immediately then becomes comprised in their estate for IHT purposes. For example, if the will has a condition that the deceased’s grandchildren have to reach a certain age before they can inherit the home, which means the home is held in a trust subject to a contingency, the RNRB would not apply because the grandchildren do not inherit the home on the death of their grandparent.
This does not apply to individuals who have not been married or have not entered into a civil partnership.
This does not apply automatically – it has to be claimed. A claim typically requires to be made by the deceased’s personal representatives within 2 years ending from the end of the month in which death occurs.
If there is any unused RNRB in the estate of the first spouse or civil partner of a couple to die, this unused part is available to increase the RNRB available to the survivor’s estate when they die.
Why might the RNRB have been 100% unused on first death?
The brought-forward allowance is calculated by reference to the unused percentage of the RNRB on the earlier death.
It is possible to transfer unused RNRB from more than one pre-deceased spouse or civil partner by adding together the percentage of unused RNRB from each of them, but the total percentage is limited to 100%.
The brought forward allowance is available regardless of
First death before 6 April 2017
As there was no RNRB at that time, none can have been used!
The brought-forward amount will be 100% of the RNRB in force at the second death. The only factor that might reduce the brought forward amount is if the first death estate value was greater than the £2m taper threshold (see example of ‘Fred’ in the £2m taper threshold section).
Example of first death before 6 April 2017
Example of first death before 6 April 2017 where deceased had no home
First death after 5 April 2017
As RNRB was available it is possible that some or all of the available RNRB may have been used on the first death, reducing the unused amount which can be transferred. Again, there is no minimum value an estate must have been worth, and there is no requirement that it included a home. The value of the unused RNRB on the first death may be reduced by the tapering provisions if the £2m taper threshold was exceeded.
Example of first death after 5 April 2017 where estate exceeds £2m
Tax rules refer to the £2m Taper Threshold as TT.
When this threshold is exceeded, the RNRB is reduced by £1 for every £2 of value by which an estate exceeds the taper threshold. Tapering can reduce the RNRB to zero.
Example of £2m+ estate where RNRB tapered to zero
Based on a RNRB figure of £175,000 in 2022/23, there will be no RNRB if the estate exceeds £2.35m or £2.7m including 100% of brought forward allowance if appropriate.
As explained above, TT applies to the value of the estate after liabilities, but before taking into account any exemptions or reliefs. This is referred to as ‘E’.
Therefore, when working out how much the estate is worth, you don’t take off any
Also, ignore assets that are specifically excluded from IHT
Note also that ‘E’ excludes the value of any CLTs (chargeable lifetime transfers) or failed PETs (potentially exempt transfers) which aggregate with the estate on death because property which has been gifted is not part of the estate immediately before death. This gives rise to planning opportunities.
The taper threshold can restrict not only the amount of RNRB available on the death, but also the amount of unused RNRB that is available to transfer to a surviving spouse or civil partner.
Example of first death estate exceeding the £2m taper threshold
Fred dies in 2010 with an estate of £2,050,000
He leaves 50% to his wife Gina & 50% to his sister
His unused RNRB is deemed to be £100,000 but this will be tapered
His estate is £50,000 over the threshold, giving rise to a £25,000 reduction down to £75,000
Gina’s estate is below £2m including a home worth £375,000 (everything left to her son)
Gina is entitled to a RNRB of £175,000
Fred’s 75% of his RNRB was unused
Gina is entitled to a ‘brought forward’ amount of £175,000 x 75% = £131,250
Gina has a ‘default’ RNRB of £175,000 + £131,250 = £306,250
Gina’s ‘default’ RNRB is not tapered as her estate is below £2m
Gina leaves her house worth £375,000 to her son
Gina is entitled to RNRB equal to the lower of £306,250 or £375,000
Gina’s estate qualifies for RNRB of £306,250
In summary therefore, the steps required to calculate the RNRB due are as follows
1. Calculate the default RNRB as follows
2. If the death estate exceeds £2m then reduce the default allowance by the taper amount. This reduced value is the adjusted allowance
3. Calculate the value of the home which is being closely inherited
4. RNRB will be the lower of the value of 2 & 3 above
Example of tapered RNRB due to second estate exceeding £2m
These rules are complicated!
It was recognised that people who had downsized to a less valuable property in later life, or who had sold their home when they moved into care, might lose some or all of their entitlement to RNRB. The downsizing provisions provide a way for any RNRB that might otherwise have been lost due to the disposal or downsizing to be reinstated, as long as other assets are closely inherited. This amount is called the downsizing addition.
All these conditions must apply:
Another acronym – tax rules refer to this as a ‘Qualifying Former Residential Interest’ or QFRI.
The cut-off date of 8 July 2015 means that any sale, gift or other disposal before that date cannot be taken into account.
The downsizing addition will only be available if the value of any home at the date of death is below the default or adjusted allowance and some assets other than the home have been closely inherited. The downsizing addition cannot cause the RNRB to exceed the default or adjusted allowance.
In the same way that there can only ever be one home in an estate, there can only be one downsizing event taken into account.
There is no automatic entitlement to a downsizing addition. The deceased’s legal personal representatives need to make a claim for the downsizing addition and they must nominate the disposal that they wish to be taken into account. Form IHT435 is provided to make a claim for the downsizing addition. The claim time limit is 2 years of the end of the month that the person dies. HMRC can extend this time limit in some circumstances.
Example of individual selling up and moving into care
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