Residential nil rate band
Written by Ray Coman
Since 6 April 2017, there is an additional nil rate band available for the family home. The nil rate band for 2020/21 is £175,00 per person. The residential nil rate band is abated for individuals with an estate over £2 million. The value of the residential nil rate band tapers at a rate of £1 for every £2 that the estate is above £2 million. The threshold is compared to the value of the entire estate and not just the family home. For 2020-21, the residential nil rate band is fully tapered for estate worth over £2,350,000.
If the nil rate band is applied to the family home, there is a total of (£325,000 plus £175,000 or) £500,000 available to reduce the value of the taxable estate. A surviving spouse will also be able to use any unused nil rate band on death of the husband or wife. To that extent, as much as £1 million of the matrimonial home could escape inheritance tax.
The residential nil rate band has taken more properties out of the estate for inheritance tax purposes and thus reduced the need for tax planning that is likely to get caught by gift with reservation regulation.
It is a requirement that the property has been the residence of the deceased at some point. By concession where a donor has downsized prior to dying, the residential nil rate band will be available to reduce an amount of the estate equal to the disposal value of the former family home.