RESIDENTIAL NIL RATE BAND (RNRB)
A person can benefit from two separate nil rate bands, provided they meet a certain criteria. The first of these being the standard nil rate band (NRB) currently set at £325,000 and the second being the residential nil rate band (RNRB) which is currently £175,000. These figures are frozen until at least 2028 and all figures are correct as of August 2024. If a person is married or in a civil partnership at the time of their death, there is the potential that on second death, the deceased can claim their NRB, their RNRB, the transferable NRB (TNRB) and the transferable residential nil rate band (TRNRB). The transferrable allowances can be uplifted as long as the deceased did not use their allowance on their death and passed all or the relevant amount of their assets to their spouse or civil-partner.
For a person to qualify for the RNRB they must have owned a residential property which was their principal private residence, this must also, on death, pass to their direct descendants or be ‘closely inherited’ by their direct descendants’ spouse or civil partner and their overall estate must not exceed £2.25 million (at this point the RNRB is completely lost due to the taper relief provisions).
Firstly, lets establish who an estate can pass to, to ensure the RNRB can be claimed. As mentioned above, ‘direct descendants’ is the category of people who the property must pass to in order to claim the RNRB. Direct descendant for this purpose is interpreted as being a deceased’s children, grandchildren, remoter issue, any of the aforementioned persons spouse or civil partner, stepchildren, adopted children or foster children of the deceased and any person whom the deceased had guardianship of while that person was under 18 years of age. Any other person not mentioned above will not qualify to apply the RNRB.
Unmarried couples can also not benefit from the RNRB nor can a partner’s children, this does not qualify as being ‘closely inherited’. This is regardless even when unmarried couples cohabit or own a property together.
It is widely known that if a person names their grandchildren as beneficiaries that they are entitled to also claim the RNRB, only if they leave the attaining age at 18. Specifying any other age means there is a possibility that they may lose eligibility of RNRB on that portion. However, this does also apply when applying an attaining age to the children.
For example; if a person leaves their estate to their children on attaining 21 years of age, it is possible that they could lose the benefit of the RNRB.
A vast majority of clients wish not to pass their estate over before their child or children attain a higher age, which is understandable and can still be achieved without losing the RNRB. This can be done by gifting the main residential property to direct descendants on attaining 18 years of age but then passing the remaining residue at a higher age, enabling them to still benefit from the RNRB provided all other criteria is met.
If a client was to include an attainment age above 18 for their children to benefit, for instance they are to attain at 21 years but when the Will comes into effect upon death the children are over 21 years of age then the RNRB can still be used as the use of an 18-25 trust was not needed.
For any estate planning and probate enquiries in Bexhill, Battle, Hastings, Rye and all East Sussex please get in touch.
This message was added on Tuesday 3rd September 2024
