From 6 April 2017 your main residence starts to attract relief from Inheritance Tax. The relief applies to a home that you own outright or your share of your home, that you pass to your direct descendants when you die, providing your estate is valued at less then £2 million. Above this figure the RNRB is gradually tapered away.
The RNRB available (which is given automatically) is the lower of:
1. The value of your home or your share, that is inherited by your direct descendants and
2. The maximum RNRB available for the estate in the year that you die.
The maximum RNRB available each year is as follows:
Thereafter, the proposal is to increase these bands in accordance with the Consumer Prices Index.
RNRB applies in addition to the existing Nil Rate Band (NRB). The current NRB available to an individual is £325,000 (£650,00 for a married couple), which means that by 2020/21 a couples’ estate can be valued at £1 million, before paying any inheritance Tax, providing it includes a home valued in excess of £350,000 (£175,000 x 2), that passes to direct descendants.
Any RNRB unused on first death can be transferred to a later deceased spouse even if the first spouse died before 6 April 2017, although this will need to be claimed.
RNRB is also available if an individual downsizes to a less valuable home or has sold or given away the home at any time after 7 July 2015. Again in this situation the RNRB will need to be claimed.