As surely everybody knows by now, for deaths occurring after 5
April 2017 an additional IHT allowance is available in respect of a
residence which the testator owns or has owned in the past. This is
called the "residence nil rate band" (RNRB) and is given by an
increase in the standard nil rate band available to the individual.
Although the RNRB has also been referred to as the "main" residence
nil rate band, this is incorrect. For a property to qualify under
the RNRB legislation, it is sufficient for the property to have
been a residence (i.e. not necessarily a main residence) of the
deceased at some point.
Many people still remember the Tory manifesto promises to make
estates up to £1million inheritance tax free for married couples
and so perhaps unsurprisingly there are people who believe that as
long as their estate is below £1million they have no IHT problem
and so it does not matter what precise provisions are included in
their Will. This, of course, is far from the truth although the
RNRB addition is definitely welcome, especially given that the
standard NRB has been frozen at £325,000 since 6 April 2009. This
month we will look at the various typical Will planning strategies
and check whether these are still valid having regard to the
RNRB. But first some basics.
How does the RNRB operate?
- The RNRB will only be available when a qualifying residential
interest (broadly, an interest in property that has at some time
during the period of ownership been occupied by the deceased as a
residence) is 'closely inherited' (that is, inherited by lineal
descendants or their spouses/civil partners).
- The RNRB is still available where an individual either
downsized or ceased to have a residence at all (if, for example,
they have moved into residential care). This additional amount of
RNRB is known as the 'downsizing addition'.
- Although the RNRB applies to deaths occurring after 5 April
2017, the downsizing provisions apply to disposals of property on
or after 8 July 2015.
- Lineal descendants include children, grandchildren and remoter
issue, adopted children, step children and foster
- The RNRB starts at £100,000 in tax year 2017/18 and will go up
to a maximum of £175,000 for tax year 2020/21. Where the value of
the estate (after deducting liabilities but before reliefs and
exemptions) exceeds £2 million then, broadly, the RNRB will be
reduced by £1 for every £2 excess value so that by 2020/21 there
will be no RNRB available on first death if the net value of the
deceased's estate exceeds £2.35 million.
- Unused RNRB is transferable to a spouse in the same way as the
standard NRB and will apply on the second death even when the first
death took place before 6 April 2017.
It is important to note that the RNRB is not set
against the legacy of the residential property but applies
generally to the charge on the estate (i.e. it is not focused on
the property so that there may still be a tax charge on it).
When is the RNRB not available?
The RNRB is not available to the following:
- People without children. For instance, two sisters living
together and the property is inherited by the survivor - no
- People who rent a property and have chosen to invest their
money, for example into an investment portfolio / let
Which Will trusts will allow the RNRB to
Where Will trusts are concerned, the RNRB will only be available
in the following cases:
- a bare trust for a lineal descendant (or their spouse/civil
- an IPDI trust for a lineal descendant (or their spouse/civil
- a disabled person's trust for a lineal descendant (or their
- an 18-to-25 trust
- a bereaved minor's trust (BMT)
Clearly, for those who wish to maximise the use of the RNRB it
is important that the Will provisions ensure that the relevant
legacies qualify and the scope is clearly limited. For example, if
the property is left to a discretionary trust, the RNRB will not be
available, even if the only beneficiaries of the trust are the
A typical grandparental settlement, "to such of my grandchildren
as shall attain age 21", also will not qualify if the grandchildren
are minors at the date of the testator's death because it is a
relevant property trust. To secure the RNRB the grandparents would
need to opt for a bare trust or at least an IPDI trust. Remember
that 18-to-25 trusts and BMTs can only be created by
Is this the end of discretionary Will
Historically, IHT planning for married couples has been founded
on ensuring that full use is made of both nil rate bands. Where the
main asset of the couple was their main residence such planning
would involve sometimes very complex schemes based on debt or
charges against the property occupied by the surviving spouse.
There were potential problems if the property was left to a
discretionary trust but the survivor continued to occupy it, as
HMRC would often treat such an arrangement as a life interest in
favour of the spouse, thus defeating the IHT planning
objective. However, since the introduction of the
transferable nil rate band (TRNB) in 2007 the incentive to carry
out such planning has significantly diminished.
The introduction of a transferable RNRB for those who leave
their family home to their descendants will diminish the need for
this type of planning still further, especially as the RNRB will
almost always be worth more on second death than it is on the first
death. It is also important to note that if a gift of a 'qualifying
residential interest' (such as a tenant in common share in the
family home) is made to children on first death, the RNRB will be
used in priority to the NRB, negating any possibility of a 100%
uplift in the RNRB on second death.
Of course, there may be other reasons for using the RNRB and/or
NRB on the first death of a couple. For example, where either
spouse has previously been widowed, use of the NRB /RNRB on the
first death may pave the way for use of a total of three NRBs/RNRBs
rather than just two. In such cases, absolute first death gifts to
children should generally not exceed the available NRB - any excess
can pass to the spouse who can then make unconditional potentially
exempt transfers to the children if appropriate.
Another situation when a use of the NRB on the first death would
be appropriate would be when the house alone is valued at more than
the total NRB amount likely to be available on second death (taking
account of both nil rate bands and RNRBs) and there are no or
insufficient other assets in the estate. In such a case a gift of a
share of the property to children on first death might seem to be
the easiest way to achieve this.
Reinstating the RNRB after death
So what if a Will provision is such that the disposition fails
the RNRB requirements, e.g. to a discretionary trust? Well,
post-death variations passing a residential interest to lineal
descendants will attract the RNRB (assuming all the other
requirements are satisfied) because there is reading back under
IHTA 1984, section 142 for all IHT purposes.
In addition, section 144 IHTA 1984 may also be of assistance. As
indicated above, a discretionary settlement will not qualify for
the RNRB even if all the beneficiaries are lineal descendants.
However, an appointment made within 2 years of death to the lineal
descendants will be read back into the Will under IHTA 1984,
section144 and so trustees can retrospectively secure the RNRB for
Of course, ideally one should not have to depend on any
post-death variations, as any such action will depend on the
agreement of all those concerned and that may not always be
forthcoming, especially if it may lead to some of the beneficiaries
losing a part of their expected inheritance.
Is there still freedom to disinherit one's
Now that the Supreme Court has reversed the Court of Appeal
decision in Ilott v Mitson (see Ilott v The Blue Cross and
others  UKSC 17) by re-stating the narrow range of cases
that can be brought under claim under the Inheritance (Provision
for Family and Dependants) Act 1975, those who were concerned that
the old principle of English law that allows one to make whatever
Will provision they want had been undermined, can breathe a sigh of
In that case Heather Ilott brought a claim against the estate of
her mother, Melita Jackson, after discovering that her mother's
entire estate, worth approximately £486,000, had all been left to
charities. Mrs Jackson went to some considerable trouble in
explaining the reasons for her decision not to leave anything to
her daughter. Nevertheless the Courts, up to the Court of Appeal,
found in her daughter's favour. Unsurprisingly, the decision of the
Court of Appeal especially (which tripled the original award)
caused some consternation in legal circles; thankfully it appears
that we are back to business as usual.
Naturally, where the testator does not want to leave their
estate to their children, the RNRB will only be available if the
"residential interest" passes to other descendants such as
grandchildren. If not, then the RNRB will not be available. As
always any tax planning will have to take account of the
individual's wishes, even if they do not produce the best tax
outcome, as long as the individual is aware of the consequences of
their action. Needless to say, if all assets pass to charity, as
under Mrs Jackson's Will, there will be no tax to worry about.
The case also illustrates the importance of leaving not just a
Will but also an explanation of the Will provisions, especially
where the testator wants to disinherit a potential
It should be remembered that it is different in Scotland where
certain forced heirship rules apply.
In conclusion, while it is essential that the
RNRB provisions are considered and taken into account when making
or reviewing a Will, in the end it will be up to the testator to
According to recently reported figures from the government's
Probate Register there were more than 12,000 Will disputes in 2016
and most of these Will disputes were apparently brought
under the Inheritance Act 1975, largely because people feel that
they have not been appropriately provided for in a loved one's
Will. It is possible that the number of these might fall following
the Ilott decision.
The above-mentioned report also suggests that around half of
adults still do not have a Will, which is quite
Surely it is a duty of any financial adviser to
ensure that their clients have a legally valid Will. As indicated
above, an explanation of the reasons for their Will provisions can
help too. And remember that a Will needs to be regularly reviewed
and updated, especially after any major life event such as
marriage, divorce or having children, as well as after any
significant changes to the tax rules, such as the introduction of