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Scottish Field - - YOUR MONEY -

Q: I re­call a £1m IHT ex­emp­tion was an­nounced for mar­ried cou­ples. I am keen to put my house in or­der and with my es­tate val­ued at just over that amount what can I do to take ad­van­tage of this?

A: As with most tax re­lated mat­ters the head­line an­nounce­ment be­lies a de­gree of com­plex­ity within the leg­is­la­tion. Im­por­tantly, the £1m is the max­i­mum value of the es­tate be­fore IHT is payable, nor­mally at 40%. This is made up of two ex­ist­ing nil rate bands of £325,000 and a new res­i­dence nil rate band (RNRB) of £175,000 per per­son; giv­ing a to­tal of £1m per cou­ple. The RNRB is be­ing phased in from April 2017. Ini­tially the band is £100,000 per per­son, ris­ing in £25k in­cre­ments to £175k from April 2020. If not used on first death the £325,000 band and the £175,000 band can be trans­ferred to the sur­viv­ing spouse.

The RNRB re­lates specif­i­cally to an in­ter­est in one res­i­den­tial prop­erty and where there is more than one res­i­dence ex­ecu­tors can nom­i­nate which one should qual­ify. A fur­ther re­quire­ment is that the house is passed to a di­rect de­scen­dant and this def­i­ni­tion has been widened to in­clude stepchil­dren, adopted and foster chil­dren. Any sur­plus RNRB can­not be trans­ferred to other as­sets though there are pro­vi­sions to deal with down­siz­ing to a less valu­able home. To avoid crit­i­cism of favour­ing the wealthy, the leg­is­la­tion in­cludes a ta­pered with­drawal of the RNRB for an es­tate val­ued at over £2m. This mech­a­nism with­draws £1 of relief for ev­ery £2 over the thresh­old. This ar­ti­cle is for the pur­poses of in­for­ma­tion only and should not be in­ter­preted as in­vest­ment ad­vice.

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