Progressive changes to Inheritance Tax (IHT) first introduced earlier this year will prove increasingly beneficial for families between now and 2020.
As of April 2017, families who wish to pass property down to their children or grandchildren in their Wills can benefit from a new tax-free allowance known as the additional residence nil rate band (RNRB) – but only if they seek specialist legal advice to amend their Wills accordingly.
Currently each individual is entitled to pass on £325,000 worth of property, savings and other personal assets in their Will tax-free, with anything above this threshold or ‘nil rate band’ attracting IHT at a rate of 40 per cent of the total estate’s value.
But under the RNRB, individuals who wish to pass on residential property to qualifying beneficiaries such as children, grandchildren, foster children or step children, can tap into an additional tax free allowance of £100,000.
Better still, this additional allowance will rise over the course of time. Over the next three years, the RNRB will rise to £125,000, £150,000 and £175,000, respectively.
This means that by 2020, each individual will be able to pass on up to £500,000 in property value to their direct lineal descendants completely free of IHT.
However, the rules surrounding IHT and the new RNRB are complex and confusing – and it is important to seek specialist advice in order to determine eligibility and update any Wills accordingly.
Jamie Romer, Associate at OGR Stock Denton, said: “Not everyone is eligible depending on the structure of their Will and the size of their estate, but careful planning with the right advice can help maximise the availability of the additional nil rate band.”