How does my NRDT help with the RNRB? Do I need a “Wills MOT”?
OK I am confused now, please explain?
To do so I must apologise in advance for the use of abbreviations.
The Nil Rate Band (NRB) for each person is currently £325,000 so that for a married couple (or civil partners) has twice that or £650,000 (so two (2) NRBs) to set against their combined estates. So for a married couple (or civil partners) IHT should only start when your (combined) estates are over £650,000. Your estate over that sum then pays IHT at the rate of 40% to HMRC.
Your NRDT, or Nil Rate Band Discretionary Trust, was (usually) included in Wills for Inheritance Tax (IHT) planning purposes. So for estate for a married couple, or those in a civil partnership, you had the use of two (2) NRBs, so that overall your beneficiaries paid the least amount of IHT. The NRDT (which included a discretionary trust) in your Will as the device to ensure getting the two (2) NRBs which made that part of your Will very flexible. NRDT Wills were also sometimes called Flexible Wills.
The Government has now introduced for married couples, or those in a civil partnership, where they have a property and they leave the property to direct descendants a new “Residence Nil Rate Band” (RNRB). So where the second death is on or after the 6th of April 2017 each of the married couple (or civil partners) will also each have the RNRB which starts at a further £100,000 each (from the 6th of April 2017 and this will rise in years ahead). So for a married couple (or civil partners) with a property you should not be paying IHT until your estates are over £850,000 where the second death is on or after the 6th of April 2017 (so two NRBs at £650,000 and two RNRBs at £200,000). So, with a possible £80,000 of IHT savings here (that is 40% on £200,000) it makes sense, it seems to me, for this to be looked at seriously.
Unfortunately the rules you have to follow to benefit from the RNRB are complex. You must take advice specific to you and to your Wills to ensure that your estate will benefit from the RNRB. This would also include where you are the surviving spouse (or civil partner) where your spouse (or civil partner) has already died. So, gifts that do not fall within these new RNRB rules are many types of trusts (including discretionary trusts and life interest trusts with conditions about them failing if you remarry) and gifts conditional on someone attaining a specific age. Please note, this is not intended to be a complete list of things that mean the RNRB is not available to your estate. The RNRB will also not apply if you have never owned a property. There are rules about where you own more than one property or have sold your property during your lifetime (say to go into a Care Home).
So for a married couple (or civil partners) they will have between them two (2) NRBs and two (2) RNRBs. So for good IHT planning you should try and ensure that all four (4) can be set against your estates for IHT.
Perhaps the simplest layout, or structure, of a Will to ensure you get the RNRB for a married couple (or civil partners) would be as follows:-
- Initially everything to the surviving spouse or civil partner.
- Then a legacy of your property to your direct descendants (this is wider than just children and grandchildren and great grandchildren). This legacy would be worded to comply with all the RNRB conditions.
- Then a gift of your Residuary (or remaining) Estate to your children and grandchildren or whoever on whatever trusts and conditions you like. This can be done here as this part of your Will is not intended to get the benefit of the RNRB.
I can now answer the initial question! So if you have a NRDT in your Will then if your property did in fact pass within the NRDT it would not have the RNRB to set against this. However using the flexibility of the RNRB you have the option with Thursfields’ NRDT Wills to either easily cancel the NRDT completely or to replace the NRDT with, in effect, a clause that will comply with the rules about the RNRB. Either way will get the RNRB if that is what you want to do. You can use the NRDT’s flexibility to ensure that for a married couple (or civil partners) they will still have between them two (2) NRBs and two (2) RNRBs. This also means that you do not have to rush to replace your NRDT as their flexibility advantages still apply as, frankly, they always did.
However if you have not reviewed your Wills for, say, three to four years or so then it makes sense to have a “Wills MOT” to consider your current Wills specifically with Thursfields to see whether with all these changes amendments are needed in your Wills to keep them up to date especially for IHT. Just think how many changes have been made to tax, in general, by HMRC since you last made or reviewed your Wills. Do you really want to miss out on paying HMRC £80,000 less than you could? Is that Wills MOT long overdue? Book that appointment with Thursfields Wills & Estates Department today! I am sure we can help you and your family.