We are told there are only two certainties in life – death and taxes. For this week’s blog I have asked our private client team to talk about both! They have provided an update on the new residence nil rate band which came into effect last week. Here is what they have to say:
New legislation came into force on 6th April 2017 allowing a possible reduction in inheritance tax payable on death. Can you claim it and is there anything you need to do now to secure it?
On someone’s death, Inheritance tax is charged at a rate of 40% on their estate on any value exceeding the nil rate band; the nil rate band for the tax year 2016/2017 is currently £325,000.
From 6th April 2017 a new tax relief called the residence nil rate band (“RNRB”) will apply in addition to the current nil rate band under section 8D of the Inheritance Tax Act 1984 (as amended by the Finance (No 2) Act 2015 and Schedule 15 of the Finance Act 2016). This may allow for a significant reduction in the amount of inheritance tax payable when an interest in the family home is left to direct descendants. It will be important to review the provisions of your Will to ensure the opportunity to claim the extra RNRB is not left unexploited.
In effect you may be able to increase the overall part of your estate that is to be taxed at 0%. The RNRB can be claimed only if:
- You die on or after 6th April 2017 (although if a spouse or civil partner has died before this date their RNRB may be carried forward)
- You leave an estate valued at less than the upper limit (currently £2 million and thereafter taper relief applies)
- You leave your interest in the family home to ‘qualifying beneficiaries’
Whilst the current nil rate band stands at £325,000 (£650,000 combined nil rate band for both spouses or civil partners on the second death) an increase of £100,000 is to be available for the RNRB during the tax year 2017-2018 and you can enjoy further increases over the upcoming tax years, with an individual RNRB in the sum of £175,000 being available during the tax year 2020-2021, thus ultimately allowing an individual’s estate worth £500,000 to be charged at 0% (£1,000,000 for a combined nil rate bands for spouses or civil partners).
We advise you to consider putting a Will in place or to review your current Will in order to ensure that you do all you can to see that your Estate benefits from this new inheritance tax relief.
If you would like to speak to someone in our private client team, please contact Helen Milburn on 01642 356 500 or Katharine Ayris on 0191 232 2574
