From April 2017, you may be able to pass on
more of your estate on death without paying Inheritance Tax (IHT).
The “basic” nil-rate band (NRB) (£325,000
until 2020-21) will continue to apply.
In addition, a new residence nil-rate band (RNRB) is to be introduced.
The personal representatives of an estate will
be able to claim RNRB, in addition to NRB, if:-
-
the deceased's interest in a
residential property has been their residence at some point (e.g. a buy to let
property that the deceased never lived in would not qualify); and
-
is left to one or more of the
deceased’s direct descendants on death. This can be by the
terms of their will, under intestacy or as a result of the rule of
survivorship.
A ‘direct descendant’ means a child
(including a step, adopted or fostered child) of the deceased and their lineal
descendants (e.g. grandchildren). Therefore, if the deceased does not have
children or does not leave his or her interest in a residential property to
them, RNRB cannot be claimed.
The value of RNRB for an estate will be the lower of the net
value of the interest in the residential property (after deducting any
liabilities such a mortgage) or the maximum amount of the band.
The maximum amount will be phased in gradually between 6th
April 2017 and 6th April 2020 as follows:-
2017–18 = £100,000
2018–19 = £125,000
2019–20 = £150,000
2020–21 = £175,000
It will then increase in line with Consumer Prices Index from
2021 to 2022 onwards.
As is the case with NRB, any unused RNRB will be transferable to
a surviving spouse or civil partner.
If the net value of the deceased’s estate is above £2m after
deducting liabilities (but before reliefs and exemptions), RNRB will be tapered
away by £1 for every £2 where the net value exceeds £2m.
It is proposed that where part of the RNRB might be lost because
the deceased had downsized or had ceased to own a residence (e.g. if they sold
their property to fund their care) on or after 8 July 2015, that part of the RNRB
will still be available provided that the deceased left a downsized residence
or assets of equivalent value to direct descendants.
This is a brief summary of the proposed changes to the IHT
rules.
If you require detailed professional
advice on wills, administering an estate, inheritance tax or estate planning, please
contact our Wills, Trust and Probate department on 01702 352511.
