The residence nil-rate band is in addition to the standard nil-rate band, which is £325,000. The residence nil-rate band is £175,000. These are, however, the maximum amounts available per individual. The residence nil-rate band will be reduced if the value of the property is less than this, or if the value of an individual’s estate exceeds £2,000,000.
Just like the standard nil-rate band, the residence nil-rate band is also transferrable between spouses and civil partners on death.
The residence nil-rate band will only apply if the family home is passed to your direct descendants, other than when the home is left to the surviving spouse or civil partner in the event of the first death. As mentioned above, the deceased’s residence nil-rate band can be passed to the survivor and the survivor will then have two residence nil-rate bands to use when he or she dies and leaves the property to their direct descendants.
Planning is, therefore, essential to ensure that an opportunity to claim the residence nil-rate band is not wasted.
If the individual’s estate is in excess of£2,000,000, the residence nil-rate band will be reduced by £1 for every £2 that the deceased’s estate exceeds £2,000,000. This means that there will be no residence nil-rate band available for estate’s valued in excess of £2,350,000.The value of the deceased’s estate is calculated by deducting liabilities (such as mortgages) but before deducting reliefs and exemptions.
Anyone with a large estate should seek advice and consider reducing the value of their estate to retain the residence nil-rate band. There are various options that can be used here and many options that still provide you access to your money, and you can even set up a regular income from some options.
To retain the residence nil-rate band, it is possible to make gifts right up to the date of death to reduce the value of your estate for the purpose of reducing the residence nil-rate band. Whilst these gifts will be dragged back into your estate to calculate the taxable estate, they are not added to the value used to assess if your residence nil-rate band should be reduced.