News & Insights

Inheritance Tax – The £1M Giveaway

The topic of Inheritance Tax (“IHT”) is a key issue for many clients.

As you may know, the most recent changes in IHT legislation make it increasingly important for clients to ensure that they have up-to-date Wills in place, with their assets structured in the most tax effective manner to achieve the best possible IHT result for their families/beneficiaries.

The introduction of the Residence Nil Rate Band (RNRB) on 6 April 2017 and the subsequent increase in this allowance last month (April 2018), are key changes that make it even more important to ensure that clients obtain sound professional advice in relation to their Wills and IHT planning to mitigate their tax bill.

The RNRB combined with the other tax allowances (known as “Nil Rate Bands”) that are available to a person’s estate on death, can mean that potentially up to £1 million of your estate can pass free of IHT to beneficiaries. However, if you wish to make use of any available RNRB, it is crucial that your Will is structured correctly to fall within the scope of the rules, as set out below:

So who and what can benefit from the Residence Nil Rate Band?

To benefit from the Residence Nil Rate Band it is necessary for a person’s estate to satisfy the following conditions:

What is a “qualifying residence”?

The person has to have a qualifying residence.

Although this will often be the family home, if a person has disposed of or downsized their home then separate rules apply. Similarly, if a person owns multiple properties (whether in the UK or abroad), then further advice will need to be taken to ensure that a person qualifies for the allowance.

What does “inherited by” mean?

The qualifying residence has to be inherited by direct descendants.

This covers a variety of scenarios, including beneficiaries inheriting under a Will or the Intestacy Rules. Whether beneficiaries under a trust qualify as “inheriting” will depend on the nature of the trust.

Who are “direct descendants” of a deceased person?

  • child (step, adopted or fostered), grandchild or other lineal descendant
  • spouse or civil partner of a lineal descendant (including their widow, widower or surviving civil partner)
  • nephew
  • niece
  • sibling
  • cousin

How much is it worth?

The RNRB available will depend on the tax year in which the deceased person dies. The maximum RNRB is increasing incrementally with each successive tax year up to 2020/21. For the current tax year (2018/19), it is worth £125,000 per person – so £250,000 for a married couple.

How do I ensure my estate benefits from the RNRB?

Complying with the above conditions is just the start. For instance, the full RNRB will not be available if your estate is worth over £2 million at the date of your death. Therefore, a careful review of your lifetime and testamentary affairs may be required and we would be happy to assist you with this.


We recommend all clients review their Will and IHT position to make sure that their affairs are structured correctly to achieve their wishes in the most tax effective manner.

Please do contact Olly Davidson or another member of our Wills, Trusts and Estates team on 0118 9516200 who would be delighted to assist you with advice on Inheritance Tax and/or updating your Will.