Finally – a £1 million Inheritance Tax allowance?
The answer is yes for some people.
This is because in addition to the traditional nil rate band (the amount each person is allowed to have before paying inheritance tax ‘IHT’, currently set at £325,000) the Government is introducing a new residential nil rate band allowance ‘RNRB’ from 6 April 2017. The RNRB will start at £100,000 for the tax year 2017/18 and will rise to £175,000 by 2020/21.
This means that by 2020/21 each individual has the potential to have a total allowance of £500,000 before IHT is payable on their estate.
In the case of married couples, if the first to die has not used their allowances, the surviving spouse’s estate could potentially benefit from their own allowance (of £500,000) and also their late spouse’s (of £500,000). In this case the estate would have an IHT allowance of £1 million. IHT at 40% would only be payable on assets in excess of this amount.
The new RNRB is not straightforward though. To qualify, the deceased’s estate must include a “qualifying residence” that is left to “direct descendants”. There is also the potential for the RNRB to be lost completely by those with assets in excess of £2 million. For this reason it is important to take advice about your IHT position and to have a properly drafted Will.
If you would like to discuss the RNRB in more detail please do not hesitate to contact Lucy Watson or Sarah Parker on 01256 354481.