As you all know, new rules regarding inheritance tax were announced in the summer budget, the main change being the introduction of a new “residence nil rate band” or “RNRB”. This is being introduced as part of an ambition to enable people to leave their family home to their families.
Putting matters into context IHT tax receipts continue to rise with April to August 2015 some 23.8% higher than the same period last year. According to RICS house prices are expected to rise by 25% over the next five years and Deloitte estimate that the existing nil rate band “NRB” would now be £378k rather than £325k if it had risen in line with inflation since 2009.
What are the bare facts?
- It is not being introduced until April 2017
- The new allowance is in addition to the existing nil rate band “NRB”
- It is being introduced in stages from £100k in 2017/18, £125k in 2018/19, £150k in 2019/20 and £175k in 2020/21 before then rising in line with CPI
- It only applies is you are leaving your home to “direct descendants” which includes children, adopted children, step children, grandchildren and foster children
- The allowance will be transferable in the same way as the current nil rate band “NRB”
- If married, even if 1st death is before April 2017 any unused band can be transferred on second death
- The existing NRB has been frozen further until 2021 having remained at the current level since 2009
- The property must have been your main home at some stage but not necessarily the one you live in now
- From 8 July 2015 you can still claim the relief if you sell or downsize your home but the details are subject to further consultation with the overriding principle that there is no intention to disincentivise downsizing or selling
- For property over £2million the relief tapers off at £1 per every £2 value of the property therefore for properties over £2.35m there is no additional relief
Who may not get it?
- Anybody who does not have children
- Anybody who is not leaving the relevant portion of their estate to direct descendants
- Where the estate passes into a discretionary trust, even if children are potential beneficiaries of the trust. However there is still a lot of debate around this area and no definitive answer has been given
- If you sold your property prior to 8 July 2015
- If the value of your property (or your share of it) is less than the allowance then the allowance is reduced accordingly
- If your estate is greater than £2.35m then you do not qualify
- Where both partners die before April 2017
We do expect further consultations and possible changes before the new relief is introduced and will keep you update of these.
In the meantime, if you are concerned that planning previously done through your Will may affect whether you receive the new residence nil rate band then we are happy to review your Will for you.