Certain reliefs and allowances in estate planning and inheritance tax can have a major influence on the distribution of assets and tax liabilities. The Residence Nil Rate Band (RNRB) and the Transferable Residence Nil Rate Band (TRNRB) are two examples of such tax breaks. In the United Kingdom, several reliefs were implemented to assist individuals and families in reducing the inheritance tax burden on their estates.
In this article, we will delve into the concepts of RNRB and TRNRB, exploring their definitions, eligibility criteria, and differences. Understanding these reliefs is essential for anyone engaged in estate planning and wishes to make the most of the available allowances.
Table of Contents
What is the Residence Nil Rate Band (RNRB)?
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.
What is the Transferable Residence Nil Rate Band (TRNRB)?
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.
What is the Purpose of the RNRB and TRNRB?
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.
Also read: How to Submit iHT400 Form to HMRC
How Does the RNRB Work?
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.
What are the Eligibility Criteria for the RNRB?
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.
What is the Difference between the RNRB and TRNRB?
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.
Also read: IHT421 Form
How Does the TRNRB Work?
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.
What are the Eligibility Criteria for the TRNRB?
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.
What are the Benefits of the RNRB and TRNRB?
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.
Can the RNRB and TRNRB be Combined with Other Inheritance Tax Reliefs?
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.
Conclusion RNRB and TRNRB:
The Residence Nil Rate Band (RNRB) and Transferable Residence Nil Rate Band (TRNRB) are important tax breaks that may have a big influence on inheritance tax planning in the UK. These tax breaks are intended to assist individuals and families in protecting their family property and passing on greater wealth to future generations. Individuals may make educated judgments and work towards improving their inheritance tax status by knowing the ideas, eligibility requirements, and distinctions between the RNRB and TRNRB. To guarantee compliance with applicable legislation and to customize tactics to unique situations, it is best to get professional assistance from tax professionals or estate planning experts.
DISCLAIMER: We have written the UK accounting and tax related details for your information only. For professional advice or for any accounting task you require, you may need to speak to a professional accountant near you who can assist you. Please read our disclaimer for more details.