Residential Nil Rate Band – Qualifying Residential Interest
The rules for the Residential Nil Rate Band (RNRB) introduce a variety of new terms that need defining. The first of these is a Qualifying Residential Interest.
The new S8H Inheritance Tax Act 1984 defines a Qualifying Residential Interest (QRI) as an interest in a dwelling which has been the deceased’s residence at some time during his period of owning the property. This includes a property’s garden or grounds.
Residence itself is not defined in the Act. In the majority of cases it will likely be clear whether a property is a person’s residence (as the majority of people will only own one property, their main residence). For when it is not, it is assumed that Capital Gain Tax case law will be relevant in this area.
The property doesn’t have to be a main home and there is no minimum ownership or residing period. Any property that has never been used as a residence, for example a buy to let, cannot be used as the QRI. The exception being however if the deceased in the past used that buy-to-let as their residence.
The property does not have to be located in the UK, only within the scope of UK IHT laws. It is currently assumed that a holiday home could qualify.
Personal Representatives can only nominate an interest in one property to be used as a Qualifying Residential Interest. Where a person owns multiple properties that qualify, Personal Representatives will choose which is to benefit.
The deceased must however have lived in the property during his period of ownership.
Ryan lives at 25 Newland House, a shared ownership flat worth £100,000, in which he owns 25% (£25,000). He receives an inheritance from his mother worth approximately £1,000,000. This includes Ryan’s childhood home (3 Park Road) worth £250,000.
Ryan intends to live in 3 Park Road, but first wishes to use his inheritance to travel the world and allows his brother George to live in the property until his return.
Ryan is involved in an unfortunate diving accident in Australia and loses his life in the process. His estate passes to his estranged daughter Lucy by Intestacy.
At Ryan’s death, he owned shares in two properties, 25% in 25 Newland House and 100% of 3 Park Road. Ideally, his PRs would apply RNRB to his more valuable interest, however, whilst 3 Park Road was Ryan’s residence as a child, he did not use it as such during his period of ownership. Therefore, his interest in the 3 Park Road is not a QRI and his PRs will only be able to apply RNRB to his share in 25 Newland House.