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Inheritance tax on your main residence

With the average value of a semi-detached house in London now over £600,000 many people have found themselves affected by inheritance tax. 

29 September 2020

The inheritance tax payable on death is normally 40% on the value of a person’s estate in excess of the available nil-rate band, which has been £325,000 since 2009.

 

Residence nil-rate band (RNRB) explained

As well as the £325,000 nil rate band for inheritance tax, from 6 April 2020 individuals with estates valued at less than £2.35m can benefit from a residence nil rate band (RNRB) of up to £175,000 to apply against the value of their home. This additional amount will rise with the consumer price index in subsequent tax years.

Where an estate is valued at more than £2m, the RNRB is withdrawn by £1 for every £2 of excess – so, for example, a £2.1m estate would lose £50,000 of the RNRB.

The RNRB can be transferred to a spouse, like the main nil rate band, if not used on the first death of a married couple or civil partnership, assuming their estate qualifies.

The RNRB applies to any property owned at death that has been the main residence of the deceased during their lifetime – so even if someone has moved into a nursing home and is renting out their previous residence, the RNRB is not lost.

Similarly, there are provisions for the RNRB to apply to the proceeds of a previously sold property, where someone has downsized. The rules are complicated so advice should be taken.

For tax years after 2020/21 the maximum RNRB of £175,000 and the threshold of £2m are to be increased if the consumer prices index (CPI) for September in that tax year exceeds the CPI in the preceding September.

 

Specific advice should be obtained before taking action, or refraining from taking action, on the basis of this information. Speak with your usual Shipleys contact or one of our specialist team, shown on this page, for more details and guidance.

Copyright © Shipleys LLP 2020

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