Inheritance Tax is about as popular as a politician. Having worked all your life, and been clever and frugal, you rightfully think you can now pass your money to your children and make their life a little easier than yours was. Along comes that wonderful idea called Inheritance tax. A tax of 40% on your assets above £325,000.
There are some simple ways to protect against this tax and using the residence nil rate band (RNRD) is one of them. Before explaining that, you have a nil rate band of £325,000 per person and that is transferable if not used. So, if a spouse passes away and you don’t use their allowance, on second death those two allowances can be added together to be offset against your estate. So, on second death, if the estate is less than £650,000, there is no tax to pay.
For many, that will suffice, but given the rise in house prices, our homes are creating a problem we weren’t bargaining for. In 2017, the RNRD was introduced. It simply acts as a top up to the above nil rate band, and is £175,000 each. Therefore, a couple can potentially pass on exactly £1m to their families. Both the nil rate band and residence nil rate band are now frozen until 2026 so that is the current total.
