Increase in Residence Nil Rate Band for Inheritance Tax
The Residence Nil Rate Band which was introduced last year has, as from 6th April 2018, increased by £25,000 to £125,000; meaning that a married couple with a combined estate of £900,000 containing property worth at least £250,000 who wish for their estate to pass to their children or grandchildren can potentially leave their estate tax free.
We of course appreciate that not everybody’s estate is that straightforward and whilst the Residence Nil Rate Band increase is
welcomed, the legislation has not been made user friendly and we would recommend that those concerned about their inheritance tax position seek advice.
What is the Residence Nil Rate Band?
The Residence Nil Rate Band is an additional allowance to the Nil Rate Band which has the potential to remove a further £125,000 from a persons taxable estate but there are strict requirements.. It only applies to residential property inherited by lineal descendants (children, grandchildren and step-children are the most common classes). Therefore if you only have a property worth £80,000 the amount of the Residence Nil Rate Band that could be claimed on your estate would be capped at £80,000.
It is important to note that if an estate is worth over £2,000,000 then a taper is applied to the Residence Nil Rate Band and it decreases in value by £1 for every £2 over the threshold. If this is applicable to you it is advisable that you consider lifetime tax planning to minimise the exposure of your estate to inheritance tax.
Can I still pass my property to my spouse?
Yes. The Residence Nil Rate Band can be transferred to a spouse and it can be claimed on their death. However, only a maximum of one Transferable Residence Nil Rate band can be claimed so if your spouse is a widow or widower then you may want further advice to maximise the allowances available.
What if I move into a care home or downsize?
The legislation provides for these as it is accepted that as we get older we may not all be able to continue to maintain a large property. The provisions are complex, the best thing you can do during your lifetime is keep really good records of your property sales that can be accessed by your executors..
Do I need to remove the discretionary trust from my Will?
Not necessarily but this is a good opportunity to review the provisions of your will to make sure that they remain relevant. Clients with discretionary trusts should also take this opportunity to update their letters of wishes so that their executors can take the appropriate action to preserve the Residence Nil Rate Band that would not automatically be available.
If you would like to review your Will or consider lifetime planning in light of the changes in legislation please contact one of our expert Wills & Inheritance Tax Solicitors in our Wills Trusts and Probate department