The residence nil rate band (RNRB) frees over 20,000 people from inheritance tax
The RNRB was incrementally introduced in 2017/18, becoming fully available by 6th April 2020. Now when residential property is left to direct descendants, in addition to the standard nil rate band of £325,000 you can get up to an additional £175,000 to offset any inheritance tax due on your estate. So we can now see that it freed 20,200 people from inheritance tax.
However, £5.1 billion in inheritance tax was still required to be paid, mainly by high value estates.
But you don’t have to be enormously wealthy for your family to pay over the odds after you’ve gone. There are steps we should all be taking to take advantage of the reliefs while we can, to protect our loved ones from a needless tax bill later
5 steps to cut your inheritance tax bill
- Write a will to plan your estate to best effect. One common approach is for a married couple to have mirror wills. That means on the death of the first person, everything is left to their spouse. So there’s no inheritance tax to pay on first death and the inheritance tax bands can be passed on too.
- Leave property in the way that makes full use of the RNRB. By passing the property to your spouse on your death, and them passing it to children, you could leave £350,000 or more in property without it being subject to tax (in addition to your nil rate band).
- Consider your annual allowances. You can give away £3,000 in gifts each year which are immediately out of your estate for IHT purposes, and make small gifts of up to £250 per person – plus wedding gifts. You can give unlimited regular gifts from income – as long as they don’t impact your standard of living. You can also give one-off gifts of any size, and as long as you live for at least seven years afterwards – they’ll then be out of your estate for IHT purposes.
- Consider your pension. It can be passed free of inheritance tax, so think about spending assets outside your pension before dipping into your pot.
- Don’t forget your parents, and their arrangements too. Skipping a generation and leaving cash to grandchildren reduces the risk of being taxed twice.
Call Mark or Lauren now on 01299 251442 to find out how having a Will can assist you with your estate planning.