IHT & The Residence Nil Rate Band

The existing nil rate band of £325,000 per person or £650,000 per couple, on which 40% IHT is not paid, will remain the same. From April 2017/18 an additional main residence band of £100,000 per person will be introduced, which will increase by £25000 per year to £175,000 in 2020/21. In 2020/21 this means a house worth £1 million could be passed on tax free Under IHT rules spouses and civil partners can inherit their other half’s share of an estate tax free so the nil rate band does not need to be used up. This means the £325,000 nil rate band of a deceased spouse can transfer to their surviving spouse who will then have an IHT allowance of £650,000 when they die. Unused relief can be transferred to a surviving spouse or civil partner on a claim.

Leave everything to your spouse

Just being married isn’t enough to qualify for the £1 million allowance. Spouses have to make sure they leave the entire estate to each other in order for the surviving spouse to inherit the deceased spouse’s nil rate band and main residence band. The relief applies to residential property which is included in the individuals estate on death and which is bequeathed to children and descendants (including Step-Children) and / or their spouses.

The £1m allowance doesn’t apply right away

Many are under the misapprehension that the £1 million IHT allowance comes in next year but actually it will be phased in over the next five years so the £1 million will actually apply just in time for the next election. The legislation contains a number of definitions and formulae which require extremely careful navigation. It is not possible to cover in full the legislation as always speak to an Independent financial Adviser.