ACCA ATX ^UK Syllabus A3. Inheritance Tax - Residence NRB - Notes ^{3 / 3}

An additional nil rate band has been introduced where a main residence is inherited on death by direct descendants (children and grandchildren).

For the tax year 2024/25, the residence nil rate band is £175,000.

The residence nil rate band is only available if:

1. The individual dies on or after 6 April 2017

2. Their estate includes a main residence

3. It is inherited by direct descendants

Illustration:

Sophie died on 26 May 2024 leaving an estate valued at £800,000. Under the terms of her will, Sophie's estate was left to her children. The estate included a main residence valued at £250,000.

Solution:

The inheritance tax (IHT) liability is:
Chargeable estate £800,000

IHT liability:
£175,000 at 0% (Residence NRB)
£325,000 at 0% (NRB)
£300,000 *40% = £120,000

The residence nil rate band of £175,000 is available because Sophie’s estate included a main residence and this was left to her direct descendants.

Transferring Residence NRB

In the same way in which any unused normal nil rate band can be transferred to a surviving spouse (or registered civil partner), the residence nil rate band is also transferable. It does not matter when the first spouse died.

Illustration:

Trevor died on 19 June 2024 leaving an estate valued at £750,000. Under the terms of his will, Trevor’s estate was left to his children. The estate included a main residence valued at £350,000.

Trevor’s wife died on 5 May 2010. She used all of her nil rate band of £325,000.

Solution:

Trevor’s IHT liability is:
Chargeable estate £750,000

IHT liability:
£675,000 at 0% (£325,000 NRB + £175,000 Trevor Residence NRB + £175,000 Trevor’s wife’s unused residence NRB)
£75,000 *40% = £30,000

Trevor’s personal representatives can claim the wife’s unused residence nil rate band of £175,000 even though the residence nil rate band did not exist when Trevor’s wife died.

The amount of residence nil rate band is therefore £350,000 (175,000 + 175,000).

Note:

1. The value of the main residence is after deducting any repayment mortgage or interest-only mortgage secured on that property (as normal).

2. If a main residence is valued at less than the available residence nil rate band, then the residence nil rate band is reduced to the value of the residence.

   If an individual’s death estate is valued at more than £2 million then the residence NRB is reduced by £1 for every £2 that the estate is over £2 million. The whole residence NRB will be withdrawn once the value of the estate exceeds £2.35 million.