On the 6 April 2017, there will be a major change to Inheritance Tax (IHT) with the introduction of the Residence Nil Rate Band (RNRB). Many people are familiar with the Nil Rate Band for IHT, where you do not pay tax on assets up to £325,000 (or £650,000 for married couples/civil partners). However, the RNRB introduces a Nil Rate Band for IHT on the value of your residence in addition to the standard Nil Rate Band.
To qualify for the RNRB you must satisfy the following criteria:
• The death occurs on or after the 6 April 2017,
• The deceased owns their own home or a share of one,
• The home will be inherited by the individual’s direct descendants,
• The total value of the Estate is less than £2million
The RNRB will increase yearly until 2021 on the following scale:
• £100,000 for the tax year 2017 – 2018
• £125,000 for the tax year 2018 – 2019
• £150,000 for the tax year 2019 – 2020
• £175,000 for the tax year 2020 – 2021
The standard Nil Rate Band will be frozen until 2021 to allow for the large increases in the RNRB. The aim is that by 2021, a married couple/civil partnership will be able to leave £1million of assets to their direct descendants without paying IHT. This will be made up of £175,000 RNRB plus the Nil Rate Band of £325,000 which equals £500,000 per individual, doubled up for a married couple/civil partnership to £1million.
While the basic principal is straightforward, to make the most of the exemption we recommend you take specialist legal advice as there are additional rules in relation to:
• What constitutes the “home” for the purposes of the rules
• Downsizing, selling or giving away your home after 8th July 2015
• Transferring RNRB between married couples and civil partners
• Who is a “direct descendant”
• Tapering the relief where the total Estate exceeds £2 million
• Homes held in trusts
If you would like to discuss any of the above and/or make sure your Will takes advantage of the RNRB, please contact Nicola Lloyd on 01625 523 988 or email mail@JBGass.com