Legal News | 1.04.18
The Residence Nil Rate Band: who wants to be a millionaire?
It’s the topic nobody enjoys thinking about but in the words of Benjamin Franklin, “nothing can be said to be certain, except death and taxes”. In fact, taxes are so certain, they follow us beyond the grave. For example, for many, our biggest asset is our home and will be the most substantial gift we can leave to our loved ones. Unfortunately with the increase in property values, it is often the case that if you are leaving your property to a loved one, other than your spouse who can benefit from the spouse exemption (see our article Ken Dodd’s Last Laugh), they could be met with a whopping inheritance tax bill.
This was until last year, when the Government began to address the issue by introducing the Residence Nil Rate Band (“RNRB”). The RNRB means that, in addition to the £325,000 allowance you can pass on before paying inheritance tax (known as the Nil Rate Band), you can also pass on an additional £100,000 tax free provided that you own a residential property which is passing to your direct descendents (children, grandchildren, step children, adopted children or foster children). As of this month, April 2018, that £100,000 RNRB has risen to £125,000 and so if you are an individual, £450,000 can theoretically be passed on tax free.
If you’re married, the amount you can give away without being subject to inheritance tax could get higher. Spouses can pass any unused Nil Rate Band and unused Residence Nil Rate Band to their surviving spouse. If the predeceasing spouse didn’t use either, the survivor could pass on some £900,000 without paying inheritance tax.
The RNRB is set to increase to £150,000 in the 2019/2020 tax year, and £175,000 the following year. By the 2020/2021 tax year, we will therefore see estates of up to £1 million being passed on tax free.
Speak to your usual contact at Wansbroughs about effectively drafting your Will to ensure your estate benefits from the allowances available.
