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The Residence Nil Rate Band: passing on the family home free of Inheritance Tax
Matthew Penley – Private Client Solicitor
Starting from 6 April 2017, a new Inheritance Tax allowance called the Residence Nil Rate Band (RNRB) will be available to anyone who leaves a residential property or an interest in residential property to their descendants or to the spouses or civil partners of their descendants, in their Will.
The new allowance will start at £100,000, rising by £25,000 each year until it reaches £175,000 in the tax year 6 April 2020 to 5 April 2021. It will then increase in line with the Consumer Price Index.
A gift in a Will that specifically leaves the residential interest to children or grandchildren, will qualify for the relief. Also, a gift in a will of the residue of an estate, which contains an interest in residential property, to children or grandchildren will qualify. However, if the residue is left to another family member, for example to a nephew, that would not qualify.
Gifts of the residue to trusts, will not usually qualify. It is therefore advisable to review your will if, for example, your estate will pass into a discretionary trust. In some cases, property can be appointed out of trusts after death, so that the relief can still be obtained, but this cannot always be relied on. A limited number of trusts, such as immediate post death interest trusts (IPDIs), disabled persons trusts and trusts for bereaved minors or young persons will still qualify for the relief.
The RNRB will be available, in addition to the existing Nil Rate Band, which will remain at £325,000 until at least 5 April 2021. If the RNRB is unused on the first death, for example, because an estate passes free of Inheritance Tax to a surviving spouse, then it can be transferred to the surviving spouse, in the same way that the unused Nil Rate Band is transferred.
It is worth noting that if the total value of an estate exceeds £2 million, then the RNRB will be withdrawn by £1 for every £2 that the £2 million limit is exceeded. The £2 million limit is fixed until the tax year starting on 6 April 2020.
When someone downsizes or sells their home before death, then the RNRB will still be available. Clear records will need to be kept of the date of sale and the sale price. The RNRB is limited to one residential property and will not apply to a property that has never been lived in, such as a buy to let property.
For legal advice on passing on the family home free of Inheritance Tax or any other private client matter please contact us or call 01453 541940.
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