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From April 2017 there will be an introduction of a new Inheritance Tax (IHT) nil-rate band of £325,000. It covers the main residence (or other qualifying property the deceased lived in) when it is passed to descendants.

The new residence Nil Rate Band (RNRB) will apply if you want to pass such property to a child or grandchild. it’s important that this only applies to direct descendants (including adopted, foster and step-children) that can benefit, and that doesn’t include nieces and nephews for example. So not everyone will be able to rely on it for IHT planning purposes.

Gradual Implementation

The allowance will be introduced in stages over four years, beginning will a limit of £100,000 from April 2017, increasing to £175,000 per person in 2020. This is in addition to the individual allowance for IHT, which currently remains at £325,000 per person.

How it works

Once the changes are fully implemented, they will mean that each parent will be able to leave £500,000 in assets that include a ‘family home’ component of at least £175,000. As the allowance can be passed from one partner to another on death, when the first partner dies their allowance can be transferred to the surviving one, meaning they will have an allowance of £1 million. Where an estate is worth £2 million, the family home allowance (but not the individual allowance of £325,000) reduces by £1 for every £2 of value above £2 million.

Points to note

Only one residential property will qualify for the relief, but it is possible to nominate which property is to qualify if there is more than one in the estate. Buy-to let properties where the deceased has never lived in do not qualify.

Downsizing provisions

The family home doesn’t need to be owned on death to qualify. This is a help to those who may have downsized or sold their property to move into residential care or to live with a relative. The RNRB will still be available, provided that the property disposed of was owned by the individual and would have qualified for the RNRB if the individual had retained it, and provided that the replacement property or assets form part of the estate passed to descendants.

To qualify, the downsizing or the disposal of the property must have taken place after 8 July 2015. There is no time limit on the period between the disposal and the date of death.

Reviewing your will

It is important to review the terms of your Will. The RNRB may be lost if the main residence is placed into a Discretionary Will Trust for the benefit of the children or grandchildren. However, the rules surrounding the operation of the RNRB and the use of trusts is a complex area of law, and professional advice should be take.

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.  


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