CAN A COU­PLE RE­ALLY PASS £1 M OF AS­SETS, FREE OF IN­HER­I­TANCE TAX?

Fi­nan­cial Ad­viser, Michelle Groves ad­dresses some of the most com­monly asked ques­tions about the new al­lowance which came into force for deaths af­ter 6th April this year.

EADT Suffolk - - Education -

In­her­i­tance Tax (IHT) is a tax on the es­tate (prop­erty, money and pos­ses­sions) of a per­son who has died. It ap­plies on the part of your es­tate that’s above the IHT thresh­old, which is cur­rently £ 325,000, and is known as the Nil Rate Band (NRB). How­ever a new al­lowance – the IHT

Res­i­dence Nil Rate Band ( RNRB)

was in­tro­duced on the 6th April. This is in ad­di­tion to the nil rate band of £ 325,000, and is avail­able when the de­ceased’s main res­i­dence is be­ing passed down to di­rect descen­dants.

So how much is the RNRB and how much will I save in In­her­i­tance Tax?

The RNRB will be phased in over 4 years start­ing this April at £100,000 per per­son and reach­ing £175,000 by 6th April 2020. Dou­ble up these allowances for a mar­ried cou­ple and they have the abil­ity to pass on £1mil­lion of as­sets, free of IHT!

But what if I am al­ready wid­owed?

The RNRB will be trans­fer­able be­tween spouses and civil part­ners on death, even if the first death oc­curred be­fore 6th April 2017. Any un­used per­cent­age of the RNRB from the es­tate of the first to die can be claimed on the sec­ond death. A mar­ried cou­ple or those in a civil part­ner­ship could po­ten­tially save up to £140,000 in In­her­i­tance Tax when the sec­ond death takes place af­ter 6th April 2020 and the fam­ily home passes to di­rect descen­dants on death.

Who can ben­e­fit?

The RNRB is only avail­able where the main res­i­dence passes to chil­dren, but this does in­clude adopted, fos­ter and step chil­dren and lin­ear descen­dants e.g. grand­chil­dren. Also a hus­band, wife or civil part­ner of a lin­eal de­scen­dant.

Is there an up­per limit?

Yes, the res­i­dence nil rate band will be re­duced by £1 for ev­ery £ 2 that the de­ceased’s net es­tate ex­ceeds £ 2mil­lion mean­ing that in 2017, the al­lowance can­not be claimed where the net es­tate is val­ued at more than £ 2.2mil­lion.

What if I own more than one prop­erty or want to down­size?

Only one res­i­den­tial prop­erty will qual­ify and the de­ceased must have owned and lived in the prop­erty at some time. A prop­erty that they owned but never lived in, such as a buy-to-let, won’t qual­ify. If the de­ceased didn’t own a home at the time of death be­cause they sold or gave it away on or af­ter 8th July 2015, the rep­re­sen­ta­tives may be able to claim a ‘down­siz­ing ad­di­tion’. The amount of this will usu­ally be the same as the ad­di­tional thresh­old that’s been lost when the for­mer home is no longer in the es­tate. The prop­erty dis­posed of must have qual­i­fied for the RNRB and the re­place­ment prop­erty/ as­sets must form part of the es­tate and be pass­ing to descen­dants.

My Will leaves my home to a Dis­cre­tionary Trust for the ben­e­fit of my chil­dren. Will it still qual­ify?

If a home is trans­ferred into a Dis­cre­tionary Trust then the de­ceased’s es­tate won’t qual­ify for the RNRB, even if the ben­e­fi­cia­ries are di­rect descen­dants of the de­ceased. This is be­cause the ben­e­fi­cia­ries’ en­ti­tle­ment to use the home is at the dis­cre­tion of the Trustees, so will not be treated as in­her­it­ing the home. If you are con­sid­er­ing leav­ing your fam­ily home to a Trust you should seek le­gal ad­vice to review the po­ten­tial im­pli­ca­tions of this for claim­ing the RNRB.

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