Inheritance tax relief
A new residence nil rate band (“RNRB”) will be introduced from 6 April 2017 for UK inheritance tax purposes.
The band is an additional allowance of £100,000 that can only be offset against residential property included in an individual’s estate on death. Each year the band will increase by £25,000 until it reaches £175,000 in April 2020. This is on top of the existing £325,000 inheritance tax exemption, known as the Nil Rate Band (“NRB”).
The RNRB is only available when the residential property is passed to one or more of the deceased’s direct or linear descendants, such as children or grandchildren together with their spouses. In a similar way to the current NRB available, the RNRB may also be transferrable between spouses if the band cannot be fully utilised against the first deceased’s estate.
Furthermore, the RNRB may be available to use against previously owned residential property that was once an individual’s residence, or if an individual already has, or is planning to, downsize their home.
With these extra allowances, there is now an opportunity for a married couple to leave a maximum of £1 million worth of assets tax free, if structured correctly. There are provisions to taper this relief when the value of a net estate, before deductions for exemptions or reliefs, is in excess of £2 million.
Consideration needs to be given in terms of an individual’s will, especially when a residential property has been left to a discretionary trust as the RNRB will not be available, even if the beneficiary is a direct descendant.
You will appreciate that the rules surrounding these tax allowances are quite complicated, so we would advise that you seek expert advice to ensure your affairs are structured correctly before changing a will to accommodate the new allowance.
Please contact Michael Burgess on 01782 279615 if you have any queries on inheritance tax relief.