The residence nil rate band (RNRB) where a home or farmhouse is left to direct descendants is only available where assets in an estate before any Agricultural Property Relief (APR) or Business Property Relief (BPR) is deducted are worth less than £2 million. Where the estate value before reliefs exceeds £2 million the amount of RNRB is reduced at the rate of £1 for every £2 in excess of the £2 million threshold. Where the estate exceeds £2.35 million the £175,000 available to an individual would be lost.
When the RNRB first came into effect in April, 2017 the £2m limit was not of such great concern but with farm and property values rising even modest sized farms could now lose out on the RNRB without careful planning.
The £350,000 RNRB (2 x £175,000) potentially available for a married couple can be particularly valuable where there are non farming assets that will not qualify for relief. Where spouses are leaving everything to each other on first death this can be tricky and with farms increasing in value all the time it may be advisable to leave assets to others on first death either in the Will or by Deed of Variation.
In such cases even where the main farm will qualify for APR and/or BPR it will be important to consider gifting any assets to bring the estate under the £2 million limit. For most cases 70% of the value of the farmhouse will be covered by APR but the RNRB available on the 30% can be invaluable.
Where the estate value before reliefs is in excess of £2 million it can be brought under the limit at any time by making appropriate lifetime gifts to obtain RNRB even immediately before death.
