The introduction of the Residence Nil Rate Band (RNRB) in April 2017 attracted media attention boasting of a £1 million IHT allowance by 2020. In reality, only individuals with a specific set of circumstances will be able to claim the full £1 million IHT allowance, possibly requiring bespoke Will drafting and Inheritance Tax planning.

The full RNRB will be available to individuals who:

• Own a residence - this means the person must own property which is or has previously been their residence before they die
• Gift the residence to direct descendants - the property must pass to children, step children, adopted children, foster children, grandchildren or other lineal descendants (including husband, wife or civil partner of a lineal descendant) on the death of the owner
• Have an estate worth less than £2.2 million - if your estate is worth more than this you should still review your Will and estate planning to see whether it is possible to arrange your affairs so that the RNRB can be claimed. Clients with large estates may not see any benefits from the RNRB. The RNRB will be reduced by £1 for every £2 that the net estate exceeds £2m. There will therefore be no RNRB available if the estate contains assets of more than £2.2m.

An individual is currently entitled to £325,000 Nil Rate Band and £100,000 RNRB (rising to £125,000 in April 2018 and eventually to £175,000 by 2020), which is clearly well below the advertised £1 million figure. The £1 million figure can only be achieved by married couples who decide to leave their entire estates to each other on death. Gifts to spouses are exempt so the first spouse to die would not use any of their available allowances. The survivor would then transfer the unused Nil Rate Band and RNRB to their estates. Crucially, the survivor must leave a property at least the value of two RNRBs to qualifying descendants.

What if a person owns two or more low value properties? Or has sold their residence before they die? The RNRB can only apply to the value of one property and it will be down to your executors to make the choice. If the surviving spouse owns two flats worth £175,000 each (both of which have been their residence at one time) they will only be able to obtain a maximum RNRB of £175,000 and will lose the additional £175,000 transferred RNRB. However, if the survivor has sold a property which was their residence before they die they will be able to obtain the RNRB up to the value of the property sold.

And what if a person has sold a larger property to buy a smaller one? A downsizing provision does allow for an estate to claim the RNRB up to the value of the larger property.

While it will be possible for some individuals to see the benefit of the full £1 million Inheritance Tax allowance, there will be people who cannot access the RNRB at all or are only eligible to achieve part of it.

If you would like more information or advice to ensure your estate and your Will takes the best advantage of the Inheritance Tax allowances please contact a member of our Wills, Tax & Estate Administration team who will be happy to help.