The new Residence Nil Rate Band and what it means for you…
The new Residence Nil Rate Band and what it means for you...
In the UK, in simple terms, everyone benefits from a tax-free allowance or 'Nil Rate Band' of £325,000 on their death before any inheritance tax is payable.
In April 2017, the Government introduced an additional allowance of £100,000 called the 'Residence Nil Rate Band' which is available to individuals who intend to leave a residential property to their children or other descendants. As of April 2018, the allowance has increased to £125,000 and will continue to increase by £25,000 each tax year until 2020 when it will be £175,000.
Where married couples are concerned, when the first spouse dies and they leave everything to the survivor, on the death of the second spouse, both allowances can be utilised for the estate of the second spouse. This will mean that married couples could benefit from a tax-free estate of up to £1m from 2020, which will be welcome news for many.
| Tax Year | Residence Nil Rate Band for an individual
|
Nil Rate Band for an individual | Nil Rate Band plus Residence Nil Rate Band for an individual
|
Nil Rate Band plus Residence Nil Rate Band for a married couple or civil partners
|
| 2017/2018 | £100,000 | £325,000 | £425,000 | £850,000 |
| 2018/2019 | £125,000 | £325,000 | £450,000 | £900,000 |
| 2019/2020 | £150,000 | £325,000 | £475,000 | £950,000 |
| 2020/2021 | £175,000 | £325,000 | £500,000 | £1,000,000 |
However, on properties worth £2 million or more, homeowners will lose £1 of the additional allowance for every £2 of value above £2 million. So, for a couple, properties worth £2.35m or more will get no additional allowance.
To get the benefit of the Residence Nil Rate Band individuals must have lived in the residential property at some point. The amount of the Residence Nil Rate Band is limited to the value of the residential property at the date of death.
It's recommended that those with a potentially taxable estate take some time to review their Wills to ensure that they can take full advantage of the new rules, particularly those who have a 'Nil Rate Band Discretionary Trust' in their Will, as Wills drafted in this way will not be able to benefit from the available allowance. This means that individuals with a taxable estate and direct descendants could miss out on substantial tax saving advantages which could protect family wealth for generations.
The above represents a simple overview. This is a complex area and it is vital that detailed advice is taken from a specialist.
For individual advice and assistance contact our Wills, Probate and Trusts Team to find out how we can help.
Keri Wood, Chartered Legal Executive, Wills, Trusts and Probate, Direct Tel: 024 7649 3100, Email: KTW@bandhattonbutton.com
Band Hatton Button LLP is regulated by the Solicitors Regulation Authority.