Monday Musings - Have you figured out what to give up when you retire? Research shows that to “enjoy” a pretty basic standard of living when you retire you would.Read more
Many of us know about the Nil Rate Band – the £325,000 relief we all have available to us as estate we can pass to anyone free of inheritance tax (IHT). And of course for married couples and those in a civil partnership this is transferable (i.e. your spouse or civil partner can ‘inherit’ your NRB) leaving you jointly with £650,000 to pass free of IHT.
But what about the Residential Nil Rate Band (RNRB)? This is an additional amount you can leave free of IHT that is applicable only to your main residential property and can only be utilised by your direct decedents – i.e. children (including grandchildren, stepchildren and adopted children).
Currently the amount stands at £150,000 per person and will raise again in April 2020 to £175,000 per person. It is not set to rise after this. As with the Nil Rate Band (NRB) it is transferable between Married partners and Civil partners. This will bring their total IHT free band to £1mill.
This sounds great, but it’s worth noting that unmarried couples and those without children cannot benefit from the relief. You should also be mindful of the RNRB if you are considering any trusts, either in your will or as part of your investment planning.
Some trusts – usually Discretionary Trusts – will mean you can’t utilise the RNRB, potentially negating the benefit of setting the trusts up in the first place. That doesn’t mean these trusts are not a good idea (they can be fantastic for protecting assets from divorce settlements, and for beneficiaries receiving disability benefits who need to ensure those benefits don’t get wiped out), but it does mean you need a Will writer that will go through all the pros and cons of writing a trust with you to make sure you can make the best informed decision for your family.