Inheritance Tax Planning Update
New Additional Inheritance Tax Exemption on Estates
Estates usually benefit from a Nil Rate Band for Inheritance Tax of £325,000 (doubled up to £650,000 on the second to die of married couples), with Inheritance Tax usually payable at 40% on your assets above that level (with various exemptions).
From April 2017, the government is in addition introducing a new “Residence Nil Rate Band”. This will apply when a main residence is passed on death to a direct descendant (mainly your children or grand-children). The allowance will initially be set at £100,000 (£200,000 for married couples) in 2017/18, increasing to £125,000 in 2018/19, £150,000 in 2019/20 and £175,000 in 2020/21 i.e £350,000 for married couples or those widowed.
By April 2020, this will therefore allow the estates of those who have been widowed (ie the second to die of married couples) to benefit from a total potential Nil Rate Band of £1 million, provided that they have a main residence worth enough to benefit from the full Residence Nil Rate Band of £350,000.
There is also protection of the value of that Residence Nil Rate Band even if you downsize or sell your home after the 8 July 2015, for example upon entering residential care, so that the value of your previous home can still be preserved for the purpose of your estate having the additional Inheritance Tax allowance.
Estates worth more than £2 million will be subject to tapered withdrawal of the Residence Nil Rate Band above that level, so the provisions will mainly benefit those with estates worth less than £2 million.
If your estate is currently likely to be subject to Inheritance Tax, we recommend that you review your Wills before April 2017, to ensure that your estate will benefit, where possible, from the additional Inheritance Tax relief available. Please contact our Private Client Department on 02890 573573.