I’ve heard there will be some changes to how much Inheritance Tax is payable next year, is this true and will I need to review my Will?
A lot of people have heard about the proposed changes to Inheritance Tax (IHT) next year and, depending on your circumstances and the provisions of your Will, it may be possible for your family to take advantage of the additional tax savings.
However, before we explain the implications of the new IHT changes, it may be useful to review the existing IHT provisions; IHT is payable at the rate of 40% on the value of your estate (on death) over the current Nil Rate Band (NRB) of £325,000. There is an exemption from IHT for any part of your estate that passes to your spouse/civil partner or charity.
If you do leave your estate, or part of it, to your spouse or civil partner, it is possible for your NRB to be transferred to your surviving spouse/civil partner which would mean, on their death, IHT is payable at 40% on the value of the estate which exceeds £650,000.
From 6 April 2017, an additional Residence Nil Rate Band (RNRB) will apply if you leave your family home to children, grandchildren or other defined individuals such as stepchildren (known as ‘qualifying beneficiaries’). The initial RNRB will be £100,000 and this can be added to the existing NRB. The amount of RNRB will increase by £25,000 every year, so by 2021, a full RNRB of £175,000 will be available.
This means that, for the tax year 20/21, spouses or civil partners could have a combined NRB of £650,000 and a combined RNRB of £1,000,000. The introduction of the RNRB could result in a maximum additional IHT saving of £140,000.
So the RNRB can be claimed on your estate if:
- You die on or after 6 April 2017; and
- You leave an estate valued at less than the upper limit, initially £2 million. For estates worth over £2 million the RNRB will be tapered down; and
- You leave your home to qualifying beneficiaries. This will include leaving your home to some types of trusts.
The rules for claiming the RNRB are complicated and, to ensure that your family can benefit from the maximum IHT saving, we recommend you review your Will and take advice if you feel your Will may not meet the above criteria. It is also worth noting if you have a Trust(s) in your Will you should check whether the Trust and new IHT provisions are compatible.
If you would like to discuss the new Inheritance Tax changes, how this affects you personally and whether you need to review your Will and any Trusts set up, please do get in touch.