Prior to the budget on 8th July, there was much anticipation of a new higher inheritance tax threshold of £1,000,000. What has been announced is not quite as straightforward as might originally have been hoped.
Currently, every person has an inheritance tax threshold of £325,000. This is known as your nil rate band. This means that your estate does not pay any inheritance tax on the first £325,000 but then this tax is paid on any value above £325,000 at a rate of 40 per cent. Since 2007, the last spouse or civil partner to die of a married couple or civil partnership might potentially have a nil rate band of up to £650,000 as the law allows a transfer of a spouse’s or civil partner’s nil rate band.
So what do the new rules allow? For deaths on or after 6 April 2017, the government will introduce an additional inheritance tax nil rate band when a residence is passed on death to direct descendants.
The additional nil rate band will be in conjunction to the existing £325,000 nil rate band. Any unused additional nil rate band can be transferred to a surviving spouse or civil partner where the second death is on or after 6 April 2017. If you have an interest in more than one residential property, your personal representatives will be able to nominate which residence should benefit. The additional nil rate band for 2017-18 will be £100,000, rising in stages to £175,000 in 2020-21 and in line with the Consumer Prices Index after that.
There will be a tapered withdrawal of the relief for estates worth £2 million or more.
The government plans to extend the additional nil rate band to estates where the deceased downsized to a less valuable property or ceased to own property on or after 8 July 2015 and assets of equivalent value are passed to direct descendants on death. The extension to estates, where the deceased had downsized, will be included in the Finance Bill 2016.
At Slater Heelis our experts in the Private Client Team will be pleased to assist and advise on estate planning and please contact 0161 969 3131