The Residence Nil Rate Band (RNRB), which came into force on 6 April this year, is the result of previous commitments to increase the inheritance tax threshold for couples from the previous level of £650,000 to £1 million. While that is the intention, the new combined threshold is not currently that high as the initial rate of the RNRB is £100,000 per individual with this gradually increasing between now and 2021 to £175,000.

On the basis that the standard nil rate band is currently £325,000, when the final value of the RNRB (i.e. £175,000) is added to this and then a husband and wife’s allowances are looked at together, we reach our magic figure of £1 million. This may seem a fairly complicated way to secure a nil rate band of £1 million and given the complexity of the legislation dealing with the RNRB, it would be much easier, albeit perhaps politically more difficult, to simply increase the basic nil rate band to £500,000.

While introduction of the RNRB will provide significant inheritance tax savings for many families, the rules are complex and it is therefore important that individuals check that they meet the necessary requirements. These conditions include:

1.The RNRB can only be claimed on death and the relevant death must occur after 5 April 2017. Where the deceased had a predeceasing spouse (or civil partner) they may be able to claim their spouse’s allowance in addition to their own allowance, despite the fact that the RNRB was not available to them at the time of the first death. This is similar to the standard nil rate band which is also transferable between spouses.

2.The deceased must generally have a “Qualifying Residential Interest” at the date of their death. This means they must own a home (or a share of one) that they have lived in at some point. If there is more than one such home, then the deceased’s executors will have to elect which property the RNRB will apply to. If the deceased did not own such a home at the date of their death (for example because it had been sold when they moved into a nursing home), in limited circumstances the allowance can still be claimed.

3.The home must pass to a direct descendant. This includes children and more remote descendants, stepchildren, foster children and children to whom a guardian has been appointed.

4.The estate of the deceased must not exceed £2 million. If it does, the RNRB will be “tapered” by £1 for every £2 by which the estate exceeds the £2 million threshold.

5.The RNRB must be claimed within two years of death.

6.While the maximum value of the RNRB is £175,000 (and so £350,000 for a couple), the allowance is capped at the value of the relevant “Qualifying Residential Interest”. This means that if the relevant home is worth less than £175,000 (or £350,000 for a couple) the RNRB will be capped at the value of that house. In certain circumstances where a more valuable house had been owned in the past an additional “downsizing allowance” can also be claimed.

While rules concerning the RNRB are complicated, its introduction is welcome, as using an illustrative example we can show the possible saving available when using the two bands in conjunction.

Under the old rules, if a couple’s combined estate was worth £950,000 and was left after the second death to their children, there would have been an Inheritance Tax liability of £120,000 (excluding any other debts, reliefs or exemptions). However, since the introduction of the RNRB, if the requirements are met, this liability will fall to £40,000 if the second death occurs during the current tax year and will eventually disappear altogether as the RNRB is increased over time. This considerable reduction in Inheritance Tax liability will allow more of your money to stay within your family.

While in the majority of cases the RNRB will apply without difficulty, given the complexities in the rules we would recommend that if you wish to ensure that your estate qualifies for the maximum possible allowance you approach one of our succession planning specialists, to ensure you are able to make the most of these savings. They will help you navigate through this complex change to the Inheritance Tax rules.