Inheritance Tax (IHT), once a tax on the privileged few, is now affecting more and more families across the UK. In fact it is predicted that, by 2019, 10% of all estates in the UK will be subject to IHT: as recently as 2009-10, only 2.6% were. (As has long been the case, remember that any assets left to a surviving spouse are not assessed for inheritance tax purposes until the surviving spouses dies.)
There are two main reasons for this:
• Increased property prices;
• The Nil Rate Band (NRB) has been frozen at £325,000 since 2009.
So, when David Cameron announced in 2015 that ‘principal private residences’ ‘(the family home’ in plain English) valued at up to £1million would be exempt from IHT, this was seen to be a great step in the right direction. As always, the devil is in the detail, and this new ‘tax break’ is certainly not as simple as many first thought.
As of 6 April 2017, an additional allowance known as the ‘Residence Nil Rate Band’ (RNRB) means that the first £100,000 of a home’s value is exempt from IHT. The standard £325,000 can then be applied to the balance of the value of property and assets in the estate. In order to qualify for the RNRB, the property in question must be passed to a direct descendant, which would include children, grandchildren or stepchildren.
The RNRB will be increased by £25,000 each year until it reaches £175,000 in 2020/21. It is also possible for a surviving spouse to inherit any unused RNRB from their partner. This may not apply in respect of unmarried partners.
For estates valued above £2million, the RNRB will be reduced at a rate of £1 for every £2 that the estate exceeds £2million.
What does this all mean? Well, the introduction of the RNRB is certainly a positive thing and, provided the appropriate planning is done, many estates in the UK will benefit. Ensuring your Will is up to date is imperative to enable you to benefit from this additional allowance. Lifetime planning, particularly if your estate is at or above the £2million threshold, is key.
This is a complex area so, if you have any questions about how this will affect you, please feel free to contact James Yeoell at Butler Toll. Before offering any formal advice – in this or any other matter – we will be sure to ensure that all your relevant personal circumstances are taken into account, as well as the impact of any current (or possible) legislation or other regulations.
For more information about Butler Toll Independent Financial Advice & Asset Management, please click here.
Tel: 01793 786300.