New inheritance tax-free allowances which come into effect this year, will allow parents to give houses up to £1 Million to their children free of inheritance tax.
This will be introduced in the form of the Residence Nil-Rate Band (RNRB). These rules are not straightforward and criticism has been directed at the restrictive scope of the new relief.
Tax expert Owen Kyffin, who is a director of Whitley Stimpson, one of the largest accountancy practices in the area, advises on the scope of the £1M inheritance tax (IHT) exemption as well as revealing a number of tips and traps to be aware of.
Owen explains: “The introduction of the RNRB is good news for taxpayers but with these new tax rules, lie some very complex provisions, so careful planning is required to ensure that maximum benefits are achieved.”
The new relief starts for deaths from 6 April 2017 and applies where there is a home included in the estate that is inherited by a direct descendant and the total estate is £2m or less. This is in addition to the existing nil-rate band (NRB) which is currently £325,000 each for a married couple or civil partners.
A direct descendant includes a child, step child, foster child, a minor child for whom the deceased was the guardian. The relief starts at £100,000 and increases in tranches of £25,000 to £175,000 by 6 April 2020.
An estate will also be entitled to the RNRB when an individual has downsized to a less valuable home or sold or given away their home after 7 July 2015. These downsizing rules can however be complicated where the RNRB is transferred or trusts are involved.
Other points to note include: the home does not need to be left by will and does not need to be the main residence. It does have to be one that has been lived in at some point by the deceased. The RNRB is only available in relation to one property and may also be available if the deceased was a trust beneficiary.
If you are intending to take advantage of the RNRB, it is important to take professional advice. For advice on your specific situation, please contact tax expert, Owen Kyffin on 01295 220914 or owenK@whitleystimpson.co.uk