£2m plus Estate and Losing Residence Nil Rate Band
Published / Last Updated on 14/12/2024
On death, your estate currently has 0% inheritance tax allowances:
- Nil Rate Band (NRB) £325,000
- Residence Nil Rate Band (RNRB) £175,000.
- Meaning if you are a property owner on death, you have inheritance tax allowances of £500,000.
Brought Forward Allowance
If you pass away and leave all your estate to your legally married spouse or civil partner, you do not use your NRB and RNRB (£500,000 inheritance tax free) allowances.
Your unused allowance is ‘brought forward’ and passed onto your surviving spouse meaning they have their own £500,000 inheritance tax free allowances as well as your unused/brought forward allowances of £500,000. Total inheritance tax allowances on 2nd death would be £1m.
- You cannot lose your nil rate band £325,000 if you have too much wealth.
- You can lose your residence nil rate band £175,000 if you have too much wealth.
Estates Worth More Than £2m and Losing RNRB
If your gross estate (before any deductions of any spousal gift exemptions, IHT allowances or agricultural and business property relief allowances) is worth more than £2m, then for every £2 above £2m, you lose £1 of your RNRB. For example:
- If your estate is £2,100,000. This is £100,000 over £2m so your RNRB is reduced by £50,000 (2 for 1) to £125,000.
- If your estate is £2,350,000. This is £350,000 over £2m so your RNRB is reduced by £175,000 (2 for 1) to zero.
What About A Deceased Spouse’s Brought Forward £175,000 RNRB?
You now have £350,000 of RNRB (your £175,000 and your decease spouse’s unused £175,000).
- If your estate is £2,350,000. This is £350,000 over £2m so your RNRB is reduced by £175,000 (2 for 1) to zero but you keep your deceased spouse’s RNRB of £175,000.
- If your estate is £2,700,000. This is £700,000 over £2m so your RNRB is reduced by £175,000 (2 for 1) to zero and your deceased spouse’s RNRB of £175,000 is also reduced to zero (2 for 1). That’s all £350,000 RNRBs lost.
Autumn Budget 2024 - Given the inclusion of unused pension funds in your estate for inheritance taxes on death from April 2027, more and more people will get caught by the loss of RNRB over £2m (when pensions are included), it is becoming even more important to plan your gifting, estate and inheritance tax planning early including the use of gifting allowances, larger 7 year gift rules, investments in trust to take wealth outside your estate.
