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Good news for homeowners! What is the new residence nil rate band? Will it affect me?

By 17th March 2017News, Wills

One of the key considerations for clients is the likely inheritance tax on their estates in the event of their death. It’s good news for homeowners next month as a new piece of legislation comes in to force as of April 2017 that allows for a significant inheritance tax saving when the main residence is left to clients’ direct descendants (children, grandchildren etc) upon death.

We see the introduction of a residence nil rate band (RNRB) which adds to the current nil rate band. The nil rate band is the amount that we can each leave upon death free of inheritance tax. The nil rate band is currently £325,000 for each individual and this has been frozen until tax year 2020/21 (so you could say that the revenue are giving with one hand and taking away with another as this amount has been frozen for some time!).

There are limitations to the rules (as always!) but the key highlights for clients to consider are:-

  1. The residence nil rate band (RNRB) is in addition to the current nil rate band available upon death and will be phased in over the next four years with a starting level of £100,000 and increasing to £175,000 by tax year 2020/21
  1. The family home doesn’t need to be owned at death to qualify. This is of help to those who may have downsized or sold their property to move into residential care or a relative’s home. (Conditions apply to this, the downsize must have taken place after April 2015 for this rule to apply)
  1. Any unused RNRB upon the death of the first spouse can be transferred to the estate of the surviving spouse (as with the normal nil rate band)
  1. RNRB is only applicable when an estate doesn’t exceed £2 million
  1. Only one residential property will qualify even if the estate comprises in excess of this number of properties; the property must have been a residence of the deceased and a buy-to-let cannot be nominated

As always, the conclusion is that it makes sense to keep Wills constantly under review to cater for changing circumstances. Discretionary trusts and large estates in particular could fall foul of the new rulings and careful consideration and advice may be needed to ensure that that legislative change does not adversely impact upon the deceased’s wishes. We appreciate that it all sounds a bit ‘wordy’ and is quite taxing (!) when trying to understand the rules in this area but when coupled with experienced and practical advice, Rebecca at Illuminate Legal can still help you prepare a Will and plan for the future for your family in a clear and transparent fashion.

Rebecca Reid, Illuminate Legal Limited, Odiham, Hampshire

Phone: 07508 082415 or email

 

Rebecca Reid

Author Rebecca Reid

She is an experienced and well-regarded private client specialist solicitor providing high quality legal advice in the field of Wills, Lasting Powers of Attorney, Probate and Elderly Client issues.

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