Tapering of residence nil rate band
The Inheritance Tax main residence nil-rate band (RNRB) came into effect on 6 April 2017. The 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. The RNRB is on top of the existing £325,000 Inheritance Tax nil-rate band (NRB) threshold.
The RNRB is being introduced in stages; it commenced at £100,000 in 2017-18, increased to £125,000 in 2018-19 and will increase to £150,000 in 2019-20 and £175,000 in 2020-21. Any unused portion of the RNRB can be transferred to a surviving spouse or partner in a similar way to the existing NRB. Taken together with the current Inheritance Tax threshold this means that by 2020-21, parents will be able to pass on property worth up to £1 million free of Inheritance Tax to their direct descendants.
However, there is a tapering of the RNRB for estates worth more than £2 million even when the family home is left to direct descendants. The additional threshold will be reduced by £1 for every £2 that the estate is valued at more than the £2 million taper threshold. Essentially, this means that no RNRB will be available for estates in 2018-19 that are worth more that £2.25million. Tapering can also reduce the amount of additional threshold available to transfer to a surviving spouse or civil partner even if no additional threshold is used on the first death.