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Transferring unused IHT residence nil rate band

6 June 2024

The Inheritance Tax residence nil rate band (RNRB) is a transferable allowance for married couples and civil partners (per person) when their main residence is passed down to a direct descendent such as children or grandchildren after their death.

After death, married couples and civil partners can transfer the Inheritance Tax (IHT) residence nil rate band (RNRB) to their children or grandchildren. This allowance applies to their main residence. It’s a provision that can significantly reduce the tax burden on the estate.

The IHT allowance rose to its current maximum of £175,000 from 6 April 2020. A surviving spouse or partner can receive any unused portion of the RNRB. This is an extra benefit to the existing £325,000 Inheritance Tax nil-rate band. This transferability feature makes it a flexible tool for estate planning.

Married couples and civil partners can pass on property worth up to £1 million tax-free to direct descendants. This combines with the current Inheritance Tax (IHT) limit of £325,000. It’s a big advantage for families, preserving wealth for future generations.

When the second spouse or civil partner dies, someone must claim to HMRC to transfer the unused RNRB. The executor usually does this. You can make this transfer even if the first spouse or civil partner died before the RNRB’s introduction on 6 April 2017. This retroactive feature ensures that no potential tax benefits are lost.

The RNRB starts to taper for estates worth more than £2 million. The additional IHT threshold reduces by £1 for every £2 that the estate exceeds the £2 million taper threshold. This could result in the full RNRB being tapered away. This tapering effect can significantly impact larger estates. The RNRB maximum rate and the taper threshold are frozen until at least April 2028. Consider this for estate planning. It’s crucial to consult with a financial advisor to ensure the most effective use of these allowances.

Source: HM Revenue & Customs Tue, 04 Jun 2024 00:00:00 +0100

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