Inheritance tax is a tax that is paid when someone passes away and leaves their estate to their beneficiaries. It can be a significant burden for those who are left behind, so it is important to understand how to avoid it. One way to do this is by taking advantage of the main residence nil rate band (RNRB).The RNRB is a tax relief that was introduced in 2017 and is available to those who are leaving their main residence to their direct descendants. This includes children, grandchildren, step-children, adopted children, and foster children.
The RNRB allows for an additional £175,000 of the estate to be passed on tax-free. This means that if the estate is worth up to £500,000, no inheritance tax will be due. The RNRB can be used in addition to the standard nil rate band of £325,000. This means that if the estate is worth up to £1 million, no inheritance tax will be due. However, if the estate is worth more than £2 million, the RNRB will start to be tapered away. In order to take advantage of the RNRB, there are certain criteria that must be met.
Firstly, the property must have been the deceased’s main residence at some point during their lifetime. Secondly, it must be passed on to a direct descendant. Thirdly, the property must have been owned by the deceased for at least two years prior to their death. It is also important to note that the RNRB can only be used once per family. This means that if two people in a family both have an estate worth up to £500,000, only one of them can use the RNRB.
The other person’s estate will still be subject to inheritance tax. The RNRB can be a valuable tool for those looking to reduce their inheritance tax bill. It is important to understand how it works and what criteria must be met in order to take advantage of it. By doing so, families can ensure that they are able to pass on as much of their estate as possible without having to pay any inheritance tax.
