Residence Nil Rate Band (RNRB) and Transferable Residence Nil Rate Band (TRNRB)

The Residence Nil Rate Band (RNRB) is an additional inheritance tax allowance introduced in the UK in April 2017. It allows individuals to pass on a certain value of their main residence to their direct descendants, such as children or grandchildren, free from inheritance tax.

The Transferable Residence Nil Rate Band (TRNRB) is a provision that allows any unused portion of the RNRB to be transferred from one spouse or civil partner to the other upon their death. This enables the surviving partner to potentially benefit from a higher inheritance tax threshold.

The purpose of the RNRB and TRNRB is to help families and individuals preserve more of their wealth by reducing the inheritance tax payable on their estates. These reliefs aim to address the rising property values, particularly for individuals who have built up significant assets in the form of a family home.

The RNRB is a threshold that is imposed in addition to the regular nil rate band, which is the inheritance tax level that applies to all persons. The RNRB permits people to pass on up to £175,000 of their principal house to their descendants without incurring inheritance tax as of the 2021/2022 tax year. This sum is subject to yearly inflationary increases.

To be eligible for the RNRB, certain conditions must be met:

The individual must own a qualifying residential property or have owned one in the past.
The property must be passed on to direct descendants, including children, grandchildren, stepchildren, adopted children, or foster children.
The property must have been the individual’s main residence at some point during their ownership or have been intended as their main residence.
The value of the property must be included in the estate for inheritance tax purposes.

The main difference between the RNRB and TRNRB is that the RNRB is an additional allowance that individuals can claim for their own estate, while the TRNRB allows the unused RNRB of a deceased spouse or civil partner to be transferred to the surviving partner. The RNRB is claimed on an individual basis, whereas the TRNRB is a transferable relief.

The TRNRB allows any unused RNRB of a deceased spouse or civil partner to be transferred to the surviving partner, potentially increasing their own inheritance tax threshold. This means that the surviving partner can benefit from their own RNRB plus the unused RNRB of their late partner.

The TRNRB eligibility criteria are as follows:

The deceased spouse or civil partner must have died on or after April 6, 2017.
The surviving spouse or civil partner must inherit some or all of the deceased’s estate.
The value of the deceased’s estate must not exceed the upper threshold limit for the RNRB.

The benefits of the RNRB and TRNRB include:

Reducing the inheritance tax liability on the family home and preserving more wealth for future generations.
Providing an additional allowance specifically for passing on the main residence to direct descendants.
Allowing for the transfer of unused RNRB between spouses or civil partners, potentially doubling the available relief.
Providing flexibility in estate planning and maximizing the inheritance tax threshold for couples.

Yes, the RNRB and TRNRB can be combined with other inheritance tax reliefs and allowances, such as the standard nil rate band, the annual exemption, and various exemptions and reliefs related to gifting and business assets. However, it is important to consult with a qualified tax advisor or estate planning professional to ensure that the reliefs are utilized optimally and in compliance with relevant regulations.