Edward Porter
Posted on 27 May 2020

Inheritance Tax: Residence Nil Rate Band hits £1m

From 6 April 2020 the Residence Nil Rate Band for Inheritance Tax (RNRB) has now reached £175,000 per person. This fulfills a pledge by the Conservative party in 2007 to increase the Nil Rate Band to £1m, but only for those estates where particular conditions are met and it will not apply to all families.

IHT is payable on death at the rate of 40% on a person’s net estate above the "normal" Nil Rate Band of £325,000. A surviving spouse or civil partner can also use the Nil Rate Band of the first to die, where it was not used, to double the Nil Rate Band to £650,000.

The RNRB started at £100,000 in 2017 and has been increased incrementally each year by £25,000 to the current level of £175,000. This can also be doubled for a surviving spouse or civil partner. Where an estate qualifies for both types of nil rate band in full there will be £500,000 available, which can be doubled to £1m.

This will benefit many families, but there also will be many cases where the RNRB cannot be claimed. Unlike the "normal" Nil Rate Band the following conditions apply:

  • the deceased must have had a residence at death or, at least, have had a residence at some point after the new rules were announced on 8 July 2015. The rules relating to “downsizing”, where a person sells their home after that date, are complicated but can maintain the relief.
  • the residence must be inherited by “direct descendants”, who are defined as children, grandchildren, and further lineal descendants
  • the value of the estate does not exceed the taper threshold of £2m. For every £2 that the value of the net estate exceeds the threshold, the RNRB will taper by £1.

It is important to note that the £2m threshold includes assets that qualify for Agricultural or Business Property Relief.

The increase in the Residence Nil Rate Band is welcome, but it remains to be seen when either form of nil rate band will be increased in the future. If the bands do not keep pace with the value of assets, IHT could be an increasing burden on families.

Coronavirus: Signing Wills and social distancing

COVID-19 has resulted in a period of reflection and many people looking to ensure that their affairs are brought up to date. With social distancing measures likely to remain in place for the foreseeable future, the valid execution of a Will has become a challenging process.

If the Will is not validly signed, a person's estate will be distributed in accordance with the statutory laws of intestacy, or the terms of a previous Will. An invalidly signed Will is also likely to lead to additional delay and costs in the administration of the estate, and potentially a dispute between beneficiaries.

To ensure a Will is validly signed, it is imperative that it is signed by the person making the Will (the testator) in front of two "independent" witnesses. An independent witness is one who is not related to the testator and who does not stand to benefit under the terms of the Will. It is also a requirement that the witnesses see the testator sign the Will and the testator sees the witnesses sign.

Having direct sight of the testator's signature can still be achieved at a distance of two metres and whilst taking steps to ensure a vulnerable testator is protected. For instance, neighbours could witness in a front garden, or even through a house or car window, and the Will itself placed for each person to sign without anyone coming too close. Ideally, disposable gloves would be worn during the process to ensure indirect contact is avoided.

Should anyone wish to update their Will, we would recommend that expert advice is taken to guide them through the process and ensure that the document both correctly reflects their wishes in a tax-efficient manner, and is validly signed.