Inheritance Tax law has undergone a significant change in recent years. The introduction of the “Residence Nil Rate Band” means that couples may have inheritance tax allowances of £900,000 in the current tax year, rising to £950,000 on 6 April 2019.
The basic Inheritance Tax allowance is £325,000 per person. A married couple have two of these allowances between them.
In April 2017, the new allowance came into effect. It allows individuals who own their home and pass that property on to their “descendants”, to have an increase to their inheritance tax allowance. Currently this is £125,000 per person, rising to £150,000 per person in April this year.
However, the new allowance is complex and so care needs to be taken when drafting your Will and planning your finances.
For example, a gift of your property to your grandchildren, which specifies what age your grandchildren need to be before they can inherit the property may not qualify for this extra allowance.
The allowance also cannot be used by people who do not have descendants. The definition of decedents in this context is unusually wide, as it includes blood descendants, adopted children, foster children, step children and individuals you have acted as guardian for as well as the spouses and civil partners of such people, and can include their widows and widowers. It does not though include your partner’s children and their descendants if you are not married or in a civil partnership with your partner.
There are special rules where someone has owned a property, but downsized, or sold the property altogether, so that the full allowance may still be claimed in such special circumstances.
The legislation also states that the allowance is restricted where the value of the estate is over £2 million.
Trusts can be an important part of person’s Will, but again the rules are set out about which trusts will qualify for the allowance and which won’t.
Given the complexities of this very valuable Inheritance Tax relief, it would be sensible for you to review your own Will and financial affairs in the light of these changes. If you made your Will before the new rules were published, your Estate may not automatically qualify for the increased allowance. A simple review of your Will could save your family time, trouble and tax.
For further advice please contact Deborah Beal, Associate Solicitor on 01562 512448 or email email@example.com