Today a major change to inheritance tax law comes into effect when the new Residence Nil Rate Band comes into force.
The Current Rules
In very simple terms, everybody has a tax free allowance of £325,000.00 on death. This figure is expected to be fixed until 2020 and is known as your nil rate band. Inheritance tax is payable at 40% on assets above the nil rate band. Gifts to spouses do not attract any inheritance tax.
If a person’s spouse predeceased them without using some or all of their own tax-free allowance, this can be passed on to the surviving spouse. Effectively, if the first spouse to die leaves their whole estate to their spouse, the surviving spouse could pass on £650,000.00 free from inheritance tax to whomever they wish.
An additional inheritance tax relief is now available for each spouse when the family home is passed on death to a direct descendant. This is in addition to your normal nil rate band of £325,000. It is being introduced in stages as follows:
- £100,000 (2017/18)
- £125,000 (2018/19)
- £150,000 (2019/20)
- £175,000 (2020/21)
When added to current inheritance tax rules, this effectively adds up to a potential inheritance tax exemption of £1 million for each married couple.
Who Does It Apply To?
Your estate will only be entitled to the residence nil rate band in full if:
- You die on or after 6 April 2017 and
- You own a home or share of a property which is or has been your residence and
- Your home is inherited by direct descendants such as children or grandchildren and
- The value of your estate is not over £2 million
Do I Need to Change My Will?
In order to ensure that the new increase applies to you, you may have to change certain trusts within your will. Here at Beswicks, the team will be able to review your will and advise on any changes that need to be made to take advantage of the new allowance.
Don’t miss out
The residence nil rate band will potentially be a valuable new relief for many, however, the qualifying conditions are not straightforward. If you believe that the residence nil rate band may apply to you, you should take advice now to ensure that your affairs and your will are suitably arranged to make sure you are getting the full benefit of the relief where possible, and your family are not paying more inheritance tax than they need to.
If you have any questions about this announcement and how it might affect you, please contact Sarah Mellor at Beswicks Legal on 01782 205000 or firstname.lastname@example.org