In 2017 the rules on Inheritance tax (IHT) changed, with the intention that eventually married couples and civil partners will be entitled to pass on assets worth £1 million, including the family home, without paying any inheritance tax by adding a new Nil Rate Band for your main residence, to the standard Nil Rate Band.
This sounds like good news, because Inheritance Tax can be a huge burden to families with large value assets. Assets valued under the ‘Nil Rate Band’ are not liable to pay inheritance tax, but anything over will have 40% to pay in Inheritance tax, and it’s usually due before everything else is settled.
The existing nil-rate band is £325,000 each. After April 6th 2019, estates are able to claim an extra ‘residence nil-rate band’ (RNRB) of £150,000 in addition and this will increase again in 2020 by another £25,000 to reach £175,000. Adding the £175,000 (RNRB) to the current £325,000 (NRB), gives a total of £500,000 to each person, which can then be transferred to spouse on 1st death, reaching the full £1m on 2nd death.
However, this will not happen automatically. For most clients, meeting the criteria to make full use of the Residence NRB could be tougher than anticipated as there are some restrictions. Here are just a few of the issues to consider:
- The increased RNRB amount is only available to homeowners who plan on leaving their residence to ‘direct descendants’ (children or grandchildren). It can’t be claimed by clients without children or wishing to leave their home to anyone else.
- Those clients with a property valued at less than £175,000 per person, or £350,000 per couple, will only partially benefit and the RNRB is also reduced for estates worth more than £2 million.
- The NRB from one spouse is not always passed on in full to their spouse. There are various reasons for this, and it’s important to ensure that probate or relevant records were completed on first death. Currently 1 in 4 applications to uplift NRB to spouse is being rejected by HMRC.
- Clients who are not married will not be able to pass on any their NRB allowance to their partner.
- Some clients will not be eligible for the extra RNRB if they made wills prior to 2007 using NRB discretionary trust. It was standard IHT planning advice at the time, but could now cost a huge amount in un-necessary IHT if Wills are left like this. This can be resolved by updating or making new wills to take advantage of the new rules.
To find out more, or discuss how these changes in the rules of IHT affect you and your family, the best way to start is by speaking to an expert in Wills and estate planning. You can contact Jenny Fothergill of APS Legal Beverley on 07796 858289 or email: jenny@apslegalbeverley.co.uk