Nicola Ashby, Clacton-based lawyer in the Thompson Smith and Puxon (TSP) Wills and Estates team, discusses changes to Inheritance Tax regulations.
The Government have announced some changes to the Inheritance Tax regulations in relation to potential tax savings when gifting the family home under a Will.
When someone passes away, their estate may or may not have to pay Inheritance Tax (IHT) on their death. To calculate how much tax, if any, will be payable we must first look at the value of their estate and how much of that estate will be subject to IHT.
IHT is charged at 40%, but will only be charged on any part of the value of the estate which exceeds the Nil Rate Band. The Nil Rate Band is currently £325,000 (for the tax year 2016-2017).
However, from 6 April 2017, an additional Residence Nil Rate Band (RNRB) will apply so that less IHT may be paid when the family home is left to children, grandchildren and some other individuals.
The RNRB could help those inheriting your assets to make an additional IHT saving on some of the value of the family home, as well as your normal Nil Rate Band.
The RNRB can be claimed if the following applies to you:
- You die on or after 6 April 2017
- You leave an estate valued at less than an upper limit (this will initially be set at £2 million)
- You leave your home to qualifying beneficiaries i.e. children, grandchildren, stepchildren, foster children, as well as the spouses/civil partners of these qualifying beneficiaries
If you die before 6 April 2017 you still may be able to use the RNRB if you leave your family home to your spouse or civil partner as it can be carried forward by your spouse/civil partner (as well as any unused normal Nil Rate Band).
The Government have announced the RNRB levels which can be added to the main Nil Rate Band. The combined Nil Rate Bands could be worth as much as £1 million by 2021, although these figures are subject to change so it is important to seek advice to ensure that you are up to date with any amendments.
The conditions of claiming the RNRB are fairly complicated and in order for the tax saving to take effect you will need to make a Will, if you do not already have one, or update your existing Will in some cases. If you think these new regulations will apply to you or if, after reading this article, you have any further queries, please contact a member of our Wills and Estates Team who will be happy to assist and advise you.
Nicola can be contacted by email at firstname.lastname@example.org or by telephone on 01255 254243.