The new Inheritance Tax Relief – How does it benefit me?
In April 2017 the resident nil rate band shall be introduced, this is a new Inheritance Tax relief which applies to your residential home. It has taken two years for the government to put the plan into action.
The new band allows an individual to potentially leave an estate worth up to £500,000 Inheritance Tax free. For married couples, this could potentially mean passing an estate worth up to £1 million inheritance tax free. To take advantage of passing £1million under their estates married couples would need to make use of the existing inheritance tax relief of the spousal exemption and the new resident nil rate band.
In 2017/2018 you shall be able to pass £100,000 of the partial or full value of your family home inheritance tax free, to a direct descendant.
Who qualifies as a direct descendant?
- a child, grandchild or other lineal descendant of that person
- a spouse or civil partner of a lineal descendant (including their widow, widower)
- A person’s step child
- an adopted child
- a child who was fostered at any time by that person
- a child where that person is appointed as a guardian or special guardian for that child when they’re under 18
What is the family home?
HM Revenue & Customs last month issued guidance on how the resident nil rate band works. They have stated that the family home included in the deceased’s estate, must have been lived in at some stage by the deceased before their death.
The direct descendants don’t have to keep the home, the personal representatives can sell the property and the direct descendants shall still have resident nil rate band benefit.
The new guidance issued can be seen as complex, as there are some hoops to jump through to qualify for this new relief.
Is there anything I need to do?
When a new inheritance tax relief is introduced, it is always a good idea to review your existing will(s) to make sure you can take full advantage of any reliefs available. The resident nil rate band does apply if you do not have a Will in place, however, it is advisable that you seek advice.
For further advice, speak to one of our Wills & Estates team at any of our offices.