TAX QUESTION OF THE WEEK: Transferable Residential Nil Rate Band

TAX QUESTION OF THE WEEK: Transferable Residential Nil Rate Band

Q- My client’s husband passed away in 2005 and the whole estate was left to my client, his wife. His unused standard nil rate band was fully transferred to his wife. Will my client also receive an unused residential nil rate band from her late husband or will the fact that he passed away before the residential nil rate band was introduced mean that it is not available?

A- The residential nil rate band (RNRB) is available for deaths on or after 6th April 2017, with the current RNRB being £125,000 for the 2018/19 tax year.

If the RNRB had not been fully used within the estate of the individual who was first to die from a married couple or civil partnership, then the unused part can be transferred to the surviving spouse or civil partner. It does not matter when the first death occurred, as long as the second death is on or after 6th April 2017.

The amount of the RNRB that can be transferred to the surviving spouse is expressed as a percentage which cannot exceed 100% (similar to the standard nil rate band). As the client’s husband passed away before 6 April 2017, there was no RNRB at the time so none could have been used. Therefore, the amount of the transferable RNRB will be 100% of the RNRB in force at the later death of the surviving spouse or civil partner.

If my client passed in 2018/19 and assuming all other conditions for the RNRB are satisfied, she will receive her RNRB of £125,000 and the transferred RNRB of 100% of £125,000. Therefore, she would have a total of £250,000 of RNRB to set against her estate.

One point to be aware of is that the amount of the late husband’s transferrable RNRB will be subject to the tapering provisions. Where the value of his estate after liabilities exceeded £2 million, then the transferrable RNRB is tapered by £1 for every £2 in excess of £2 million. As such, it is possible that the transferrable RNRB can be tapered to nil.