Inheritance tax and the family home

Since the Budget in April this year many clients have said that due to the changes in inheritance tax (IHT) they believe they do not need to worry about any tax planning. But is this correct?

Ignoring any reliefs for agricultural and business property, IHT is currently charged at two rates:

• 0% on the first £325,000 (the nil rate band)

• 40% on everything in excess of £325,000.

If any of the nil rate band is unused on the first death of a spouse or civil partner then on the death of the survivor the unused part can be transferred to the second estate. This is called the transferable nil rate band and is how surviving spouses and civil partners can have estates of £650,000 before becoming liable to IHT.

From 6 April 2017, an additional residence nil rate band (RNRB) applies so that less IHT may be paid when the family home is left to children, grandchildren and some other individuals.

The value per person of the RNRB is initially£100,000 rising by £25,000 over the following four years to reach £175,000. It is transferable too, so after April 2021 married couples and civil partners may be able to benefit from a combined nil rate band and RNRB of £1 million.

It can be claimed if all of the following apply:

• you die on, or after, 6 April 2017

• you leave an estate worth less than the upper limit of £2 million. (Between £2 million and £2.2million the relief tapers down until it is no longer available.)

• you leave your home to qualifying beneficiaries such as direct descendants and some other individuals such as stepchildren or foster children.

To ensure that you maximise the tax-saving effect of the RNRB we strongly recommend that you review your will, or make a will if you do not already have one.

The conditions for claiming the RNRB are complicated and you should get expert advice to ensure that your family can benefit from the enhanced nil rate band inheritance allowance in the future.

Simon joined us in 2014 having moved from QualitySolicitors Thomson & Bancks where he headed their private client department, and now leads our wills, trusts and probate team. He deals with all aspects of private client work such as trusts (including personal injury trusts), wills, powers of attorney, Court of Protection and estate planning and administration. Simon is also a member of the Society of Trust & Estate Practitioners and the Law Society Private Client Section.