If you happened to catch my previous article in January on gifting [1] you will have read that on death your estate must be assessed by HMRC to see if any inheritance tax (IHT) is due.

Your estate might be made up of things such as cash, investments, land, antiques, or art, but for most people the largest asset they own will be their home.

IHT is currently payable at a rate of 40% on the amount that exceeds the main tax-free allowance (or ‘threshold’) available to individuals which is commonly known as the ‘nil rate band’ (NRB).

The NRB has remained at £325,000 since 2009 [2] and it is not set to be reviewed until 2028. Given the rises in inflation and the rising cost of property over the years, this has increased the possibility that more people than ever will be paying IHT.

The government recognised this and so to help individuals and families leave more of their wealth to their descendants they created an additional threshold known as the Residence Nil Rate Band (RNRB). This came into force on 6 April 2017 and the current maximum amount of RNRB available to an estate is £175,000 per person. It is available when a property is left to direct descendants.

It is also possible to transfer any unused NRB or RNRB on death, but you must have been either married or in a civil partnership to be able to do so. They cannot be transferred if you were simply long-term life partners or were in a long-term relationship.

From an IHT perspective this means where a couple are married or in a civil partnership and leave everything to each other on 1^st death, and then their children on 2^nd death, the executors could have up to £1 million in nil rate bands before any inheritance tax is due.

Looking at the granular detail, HMRC outlines the RNRB can be claimed against the estate of someone who has died providing the following criteria are met:

• the deceased died on or after 6 April 2017
• the estate includes a residence owned by the deceased.

A residence is defined by HMRC as:

‘any property that the deceased lived in as their home while it was included in their estate. It doesn’t have to be their main home or have been lived in or owned for a minimum period. A property that the deceased owned, but never lived in, such as a buy-to-let property, is not a residence and is not eligible for the RNRB.’ [3]

• the residence in the estate is inherited by the direct descendants of the deceased.

A direct descendant is defined by HMRC as:

• A child, grandchild, great-grandchild, or great-great grandchild of the deceased
• a husband, wife, or civil partner of a direct descendant (including their widow, widower or surviving civil partner)
• stepchildren
• foster children
• adopted children; and
• if the deceased was an appointed a guardian or special guardian for a child who was under 18 at that time, the child is treated as a child of the deceased

Direct descendants do not include:

• siblings, nieces, nephews, unmarried partners, or other relatives not included in the above [4]