The 6th of April 2017 signals the first major Inheritance Tax relief change in a decade and it builds upon the idea of spouses transferring unused tax-free values of assets (Nil Rate Bands) to each other.
At present, a person has up to £325,000 which can be set against their entire estate on their death (assuming that they have not used some of it up on lifetime gifts and that the assets don’t qualify for other reliefs). Whilst assets pass between spouses without any tax being due, families were finding that on the death of the survivor, family homes had to be sold to pay the Inheritance Tax bill.
The Residence Nil Rate Band will be an additional Nil Rate Band which can be set against each person’s estate. The relief will start at £100,000 for the tax year 2017/2018, increasing gradually to £175,000 by 2020/2021. Therefore, the Nil Rate Band could be as much as £500,000 for an individual and £1,000,000 for a surviving spouse.
However, there are many rules and requirements which need to be adhered to for the estate to take full benefit.
These include:
- The deceased owning a home or share in a home which is included in their estate on death (although specific provision is made for those who have downsized in their lifetimes)
- “Direct descendants” must inherit the home or share in the home
- The value of the estate when the claim is made is less than £2 million (with tapering applying above £2 million)
Within these requirements are very detailed definitions and qualifying factors. The Residence Nil Rate Band therefore should not be considered as a simple or even guaranteed relief and it should be remembered that lifetime gifts made by the deceased may significantly impact on the availability of both Nil Rate Bands on death.
For advice on lifetime gift implications, Wills which take into account the new legislation, and the availability of Nil Rate Bands on death, please contact one of the WTP team here.