Jack Rose: Are we making the most of the residency nil-rate band?

The residency nil-rate band was supposed to help IHT issues in relation to the family home but, writes Jack Rose, it appears people are either unaware of it, not taking full advantage or simply do not qualify

Inflated house prices have forced an ever-increasing number of people – and in the South East in particular – into a position where inheritance tax (IHT) has become a significant problem.

This was the issue the residency nil-rate band (RNRB) legislation was supposed to help alleviate when it was introduced a little over a year ago – helping to pass down the family home from one generation to the next.

And yet the latest figures released by HM Revenue & Customs show IHT receipts for 2017/18 rose to record highs – an increase of almost 10% on the previous year. Hence there is either a lack of awareness and understanding – or people are simply not meeting qualification criteria.

Why is this? Part of the issue could be in the complexity of the legislation. There are a number of traps and pitfalls, which mean that often people who do not take the proper advice run the risk of missing out on the full benefit of the legislation.

This can include situations involving property passing into some form of discretionary trust, which is an arrangement that many people have in place – a legacy from before the time that the nil-rate band was transferable between spouses.

Qualification criteria

Alternatively, people may not qualify for a variety of reasons – for example, the value of their estate is in excess of the taper threshold (currently £2.25m per individual), or they do not have a direct lineal descendant to pass their property on to – or indeed they may not own a property.

It underlines the importance of taking a holistic view on the potential solutions available to clients for IHT.

The issue is an increasingly complex one with considerations such as later life care also to bear in mind. And while there are other potential planning options available – for example, gifting, life insurance, equity release, AIM ISAs and non-AIM business property relief solutions, among others – there is no silver bullet or one-size-fits-all solution.

Jack Rose is head of tax products at LightTower Partners