RNRB changes lessen the cost of inheritance

their late RNRB.

In addition to an individual’s nil rate band, worth £325,000, RNRB takes effect where, on their death, they leave their main residence to a direct descendant.

Currently £100,000, it will 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 this year.

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.

RNRB applies for estates of up to £2 million.

For estates valued at more than £2 million, it will be gradually with- spouses’ entitlement to drawn or tapered away at a rate of £1 for every £2.

However, there are ways of getting the estate down below the limit.

These include business property relief, agricultural property relief, the purchase of AIM shares, setting up trusts, and lifetime gifts made in the seven years immediately before death. To date many married couples have chosen not to make use of the nil rate band on first death. But there are circumstances where first death nil rate planning should be considered.

Last month Tony Wickenden, joint managing director of financial consultants Technical Connection, suggested the following:

To make use of a previously deceased spouse’s nil rate band – if a widow/er remarries having inherited everything from their first spouse, they may wish to draft their own will to make use of their nil rate band plus that of the previous spouse. If they die first leaving all assets to their new spouse, they will have lost the ability to claim their deceased spouse’s unused nil rate band and possibly unused RNRB.

To hold a high growth value asset – if assets have a high growth potential, for example, land with planning permission, it may be better placing this into trust on the first death to prevent increasing the estate of a surviving spouse for IHT purposes.

To preserve business property/ agricultural property relief – if all assets are left to a surviving spouse on the first death, the availability of business property relief and/or agricultural property relief could be wasted, as the assets will pass exempt to the surviving spouse in any event. In these cases, it may be worth executing the will to pass such assets into trust.

In all this, the need for overall holistic financial planning and regular reviews of clients’ circumstances – not just specifically on their existing pensions and investments – is absolutely vital. Make sure you have everything covered. Trevor Law is managing director of Eastcote Wealth Management, chartered financial planners, based in Solihull. Email: tlaw@eastcotewealth.co.uk The views expressed in this article should not be construed as financial advice