Inheritance tax – will your family qualify?
Next month (April 2017) sees the introduction of a new inheritance tax allowance that is going to significantly improve the tax position of many people. Indeed, the new ‘Residence Nil Rate Band (RNRB)’ will lift many families out of the inheritance tax regime entirely.
From April 2017, each person will potentially be entitled to an additional £100,000 inheritance tax allowance on top of their current allowance of £325,000. This new allowance will rise each year by £25,000 until it hits a maximum of £175,000 per person in April 2020. For a married couple, this means a total extra allowance of £350,000 which equates to a tax saving of £140,000.
As one might expect these days, there are catches – the allowance will not be applied generally. In order to qualify for the new RNRB the following conditions must be met:
- You must own property, (or have owned property at some point since July 2015), when you die. The allowance can only apply to such property and so it will be limited to the value of the property if this is less than the total RNRB available. There are, however, provisions in the legislation to assist people who may wish to downsize or sell their property before they die
- The property must pass to ‘lineal descendants’ (children, inc.step-children, grandchildren and so on, or the spouses of such descendants) on your death
- The very wealthy will not benefit as the allowance is tapered away for estates of over £2 million
The new allowance will not, therefore, apply to all but it will benefit a great many families. The legislation introducing the new allowance is, however, complex and it is important to review your Wills to make sure everything is structured in a way that ensures you will benefit from the RNRB.
For example, many Wills have traditionally incorporated trusts for tax planning purposes. The reasons for these trusts were removed a number of years ago but many people have yet to update their Wills or decided that there was no real need. The inclusion of such trusts could now jeopardise the availability of the RNRB as the property will not be deemed to be passing to the ‘lineal descendants’.
We strongly recommend consulting with your legal advisor to discuss your position and your current Wills and to make sure that you have done everything possible to ensure that your Executors will indeed be able to claim this new allowance for your estate.Back to index