Residence Nil Rate Band
The purpose of this brief article is to summarise the new relief available for Inheritance Tax (IHT) that was introduced in last year’s summer’s budget.
This relief is to be known as the “main residence nil rate band” and the good news is that it is to operate alongside the current “nil rate bands” that are available for IHT: the “nil rate band” and the “transferable nil rate band”, to which I will briefly turn.
Current IHT legislation provides that each individual enjoys a nil rate band, which is currently £325,000.
Broadly put, this nil rate band is available on death and sets out that the first £325,000 of an individual’s estate is taxed at 0% (hence the name) but the excess is at 40%.
Gifts passing between spouses/civil partners are mostly exempt from IHT and the transferable nil rate band provides that if one spouse/civil partner has not used all of their nil rate band on their death, their unused nil rate band can be carried forward and essentially used on the second spouse’s/civil partner’s death.
Turning to the main residence nil rate band, the first point to make about it is that it takes effect for deaths after 5th April 2017.
The main residence nil rate band will be £100,000 for deaths during the 2017/18 tax year, increasing by £25,000 in each subsequent tax year, until reaching £175,000 for deaths during the 2020/21 tax year.
The second point to make is that it is only available to people who (a) own an interest in a home that at some point they have lived in and (b) which they leave essentially to their children or grandchildren on their death.
The main residence nil rate band can be carried forward and used by a surviving spouse/civil partner if the first spouse/civil partner does not use all of it, which will apply even if the first spouse/civil partner dies before 6th April 2017.
The relief is reduced if the value of your assets at your death exceeds £2 million.
Prince Evans Solicitors would be more than happy to advise on this relief: it may be that your Will has to be changed to benefit from it.