Inheritance Tax Planning Using the Nil-Rate Band and RNRB

Overview

The UK Inheritance Tax (IHT) nil-rate band (NRB) is £325,000. The residence nil-rate band (RNRB) gives an additional £175,000 for property passed to direct descendants. This article explains how to combine them.

Background Information

Transfers between UK-domiciled spouses/civil partners are generally exempt. On the second death, unused NRB and RNRB can be transferred.

Allowance Table

Allowance	Amount (£)
Nil-rate band (NRB)	325,000
Residence nil-rate band (RNRB)	175,000
Combined (per person)	500,000
Combined (couple)	1,000,000

Worked Example

Mr & Mrs Smith leave a £900,000 estate including a qualifying home to children.

• Each NRB 325,000 = 650,000

• Each RNRB 175,000 = 350,000

• Total allowance £1,000,000Estate below this = no IHT.

  
  

Tapering

RNRB tapers away £1 for every £2 over £2 million estate value.

Planning Tips

• Make lifetime gifts: Potentially Exempt Transfers (PETs) with 7-year taper relief:

Years before death	% of IHT payable on gift
0-3	100%
3-4	80%
4-5	60%
5-6	40%
6-7	20%

For tailored tax advice on IHT you can book in a free discovery call with one of our tax team here to see how we can help. https://calendly.com/flowaccandtax/discoverycall"