Published on: 1st June 2020
In 2015, the then Chancellor of the Exchequer, George Osborne, announced that from 6 April 2020 married couples would be able to pass on assets worth up to £1 million, including a family home, without paying any Inheritance Tax. Even though the residence nil-rate band (RNRB) has been around for three years there is still a lot of confusion about how it works.
In order to benefit from the RNRB there must be a ‘qualifying residential interest’ that is ‘closely inherited’. Qualifying residential interest means a property that has been your residence at any time. So, it doesn’t have to be your residence on your death, just at some point during your lifetime. The property then needs to be closely inherited which means inherited by direct descendants such as children or grandchildren, including adopted children, stepchildren, fostered children and those under guardianship. A spouse, surviving spouse or surviving civil partner of a lineal descendant, who has not remarried by the time of the property owner’s death, is also included. However, it doesn’t include nephews, nieces and siblings.
In recent years there have been cases where siblings living together have questioned why they cannot enjoy the same inheritance rights as other couples who have been able to formalise their relationship legally. Many siblings have argued that not being able to pass on wealth free of inheritance tax to the person they share their home and life with is discriminatory. That might be changing as at the time of writing the Inheritance Tax Act 1984 (Amendment) (Siblings) bill is going through Parliament. The proposal is that a transfer between siblings – brother, sister, half-brother, or half-sister – will be exempt if certain conditions are met.
Firstly, the sibling making the gift needs to be over the age of 30 at the time they make the gift and both siblings need to have lived together in the same household for the seven years preceding the transfer. This will provide a valuable benefit to those siblings who live together and while some, albeit very few, will have lived together for a prolonged period of time it is not unusual for elderly siblings to co-habit later in life. If you want to know more about the residence nil rate band or Inheritance Tax in general please contact us.