Inheritance Tax Band Change Anomalies Shows Need for Expert Help
As solicitors, we often have the task of trying to simplify what may not always seem straightforward and one of those matters is issues surrounding inheritance tax.
For instance, there is some confusion since the introduction of the Main Residence Nil Rate Band (RNRB) in the Summer Finance Bill of 2015, that couples will, by 2020 be allowed to leave an estate on death worth up to £1million before Inheritance Tax becomes payable.
This is especially worth highlighting for us in London and the South East, who have seen property prices in the past generation change our circumstances more than anywhere else in the country.
This may be the case for some couples, but the rules relating to the RNRB are difficult for many to comprehend and many people will not benefit from the full allowance.
The case is the RNRB will be phased in gradually between 6 April 2017 and 6 April 2020 as follows:
- £100,000 for tax year 2017/18
- £125,000 for tax year 2018/19
- £150,000 for tax years 2019/20
- £175,000 for tax year 2020/21
The standard Nil Rate Band will be frozen at £325,000 until the end of 2020/21.
As is with the standard Nil Rate Band, any RNRB which is not used on the first death can be transferred to a surviving spouse or civil partner.
So, it seems that in 2020/21 an individual will have a combined Nil Rate Band available of £500,000 and couples £1million before Inheritance Tax (IHT) becomes payable on their estate.
Yet the RNRB can only be offset against the value of the deceased’s interest in a property, which at some point has been occupied by the deceased as their residence. So, subject to a few limited exceptions, the property must be left on death to direct descendants of the deceased, which means a child (including step-child, adopted child or foster child) of the deceased and their natural descendants.
Examples of this include:
- A person who dies with no direct descendants will not be able to benefit.
- People who do not own their own home, or have given it away during their lifetime except for some limited exceptions, will not be able to benefit.
- An estate left equally between the deceased’s unmarried partner and the deceased’s children is unlikely to qualify.
It shows that we have to look beyond the headlines because the levels of complexities involved in such legislation are generally far from straightforward.
We at Pindoria Solicitors also believe it demonstrates why all individuals, especially those who have a substantial net worth should have tax and estate planning and make sure their Will is drafted accordingly following the advice.
There are many issues, which will need to be considered and everyone has their own set of circumstances which needs to be catered for.
Tax and estate planning needs expert advice and the earlier this is does the better it will be for loved ones.
If you have any questions regarding inheritance tax planning, we at Pindoria Solicitors are happy to help. Please call us today.