Remember George Osborne? Yep, the one who was Chancellor for a while and who promised to raise the inheritance tax threshold for married couples to £1 million? Well in typical political style, he sort of kept his promise when he announced in summer 2015 that he was introducing the grandly titled Residence Nil Rate Band (RNRB for short!)
The RNRB is arguably the most complicated introduction to our tax system in (at least) a generation. The new allowance will certainly see some people benefit from the long-awaited increase in the amount of their hard-earned cash they can pass to their loved ones free of inheritance tax (IHT). Provided that their loved ones receiving the required interest in their home are “lineal descendants” and that the gift to them is absolute. Oh and that they have a main residence or had one in the past. There are other conditions but we will skirt round those for now…
This is marvellous news if you have lineal descendants and if it is appropriate to leave an interest in your residence to such descendants with no strings attached.
However, the limits on the availability of the new relief are a problem for people who have children/grandchildren (even step or foster children) who might not be capable of taking control of such a gift, perhaps where they are disabled or just not great with money. Whereas trusts would usually be favoured to afford some on-going protection, using such arrangements eliminates the availability of the relief.
Which leads to the question – Are we introducing, through the back door, forced heirship rules here? They have them in Scotland and our continental cousins are au fait with such provisions but in England and Wales, we have always had freedom of testamentary disposition. Well, the RNRB takes a bit of that freedom away. The cost of securing the additional relief is that you cannot freely decide who gets part of your estate and how.
Then we have the issue of discrimination. A strong assertion but a fact. Those who do not have qualifying lineal descendants do not get a look in on the RNRB. Those who have lost children, who have never been able to have them or indeed have not wanted them, lose out.
Ultimately, the RNRB is not as generous as it first looks but most of all it is unfair, excludes some from benefiting, and leaves others with a lack of free choice on how they gift their estate.
All is not as the headlines would have you believe and even those that do qualify for the relief on the face of it need to make sure that they do not fall foul of other conditions that are not covered here.