RNRB rules will be big benefit to widows and widowers

takes effect where, on their death, they leave their main residence to a direct descendant.

The RNRB applies to individuals who die on or after April 6, 2017 and starts at £100,000.

It will then increase as follows – £125,000 in 2018/19, £150,000 in 2019/20, £175,000 in 2020/21 and thereafter rising in line with the Consumer Prices Index.

As with the individual’s main nil rate band, any unused RNRB can be transferred to the surviving spouse or civil partner. This is the case even where the first spouse or civil partner to pass away, died before April 6, 2017.

A direct descendant means a child, including a step-child, adopted child or foster child, and their lineal descendants. It also includes spouses or civil partners of lineal descendants and widows, widowers and surviving civil partners of lineal descendants, providing they have not re-married before the death of the donor.

Buy-to-let properties which have never been lived in by the deceased will not qualify for RNRB.

It will be possible to claim the RNRB in full where the deceased had either downsized to a less valuable residence or sold their residence on or after July 8, 2015.

RNRB applies for estates up to £2 million.

For estates valued at more than £2 million, the RNRB will be gradually withdrawn or tapered away at a rate of £1 for every £2.

So, let me give you a real live example of someone I know who will benefit extensively from the changes.

She is a widow who has just celebrated her 93rd birthday and now lives in a nursing home. Her husband died 25 years ago.

The family home was sold last October and so comes into the new equation.

She has total assets just shy of £700,000. Of this £321,000 was put in trust by her late husband for their two children (now both in their sixties) with her enjoying the dividend proceeds for life. This is outside inheritance tax. She has £87,142 in an Instant Saver, £43,719 in a Cash ISA, Premium Bonds of £50,000 and shares in her own right of £195,283.

Her IHT allowance is £325,000 from the nil rate band, £100,000 from her RNRB, and £100,000 from her late husband’s RNRB, totalling £525,000.

On the sale of the family home, she gifted £227,000 to her children and grandchildren.

Assuming she doesn’t live to be 100 and so benefit from the sevenyear gift rule whereby the £227,000 drops out of IHT, it leaves her with an unused allowance of £298,000.

So she is currently facing an IHT liability of £78,144, with 40 per cent going to the Government.

Options to avoid even this included AIM shares which come clear of IHT after two years.

But, given her income from dividends and attendance allowance is roughly half the £45,000 a year cost of her nursing home, with the rest coming from capital, the £78,144 is effectively being eaten away. It will be gone in three to four years.

And there are a number of other methods in which to plan for IHT.

Consult your adviser on how you can benefit too. Trevor Law is managing director of Merito Financial Services, chartered financial planners, based in Solihull. Email:tilaw@meritofs.com