ACCA Advanced Taxation (ATX) Practice Exam

What happens to the RNRB when the net estate value exceeds £2 million?

1. The RNRB increases by a fixed percentage

2. The RNRB is tapered based on the excess

3. The RNRB becomes fully exempt

4. The RNRB remains unaffected

The correct answer is: The RNRB is tapered based on the excess

When the net estate value exceeds £2 million, the Residence Nil Rate Band (RNRB) is subject to a tapering mechanism. This means that for every £2 that the net value of the estate exceeds £2 million, the RNRB is reduced by £1. Therefore, if an estate is valued above this threshold, the amount of RNRB available to offset inheritance tax will decrease systematically as the estate value increases beyond the £2 million limit. This tapering ensures that the benefit of the RNRB is gradually removed for larger estates, meaning that very high-value estates do not receive the full advantage of this relief. If an estate exceeds £2.35 million, the RNRB is completely lost, as the tapering would completely eliminate the relief available. Understanding this tapering process is crucial for estate planning and calculating potential inheritance tax liabilities for estates that are close to the threshold.