Review your Will now to take advantage of the new Inheritance Tax allowance
We’re advising all clients who are worried about whether their estate will pay inheritance tax on their death to review their Wills,says Ann Farnill, Head of Wills, Trusts and Probate at Tallents Solicitors.
The government’s new family home allowance is being phased in from 6th April 2017 and will remove millions of family homes from paying Inheritance Tax (IHT) but whether you qualify for the new allowance will very much depend on what is written in your Will, so you may need to review your Will urgently.
Inheritance Tax to be removed on family homes worth up to £1 million
In July 2015, George Osborne announced that IHT would be removed when parents or grandparents pass on a family home worth up to £1m (£500,000 for singles) to children, stepchildren, adopted and foster children, and grandchildren. This is to be phased in between April 2017 and 2020.
Currently, no inheritance tax is charged on the first £325,000 of a person’s estate. This is known as the nil-rate band (NRB). NRBs can also be passed between spouses without tax, doubling the amount that can be given away without paying IHT to £650,000. Any assets above that limit currently attract IHT of 40%.
From 6th April 2017, an individual can potentially claim a further tax free allowance, known as the residence nil-rate band (RNRB). The allowance will start at £100,000, rising to £125,000 in 2018, £150,000 in 2019 and £175,000 by 2020, thereby giving a couple an additional £350,000.
This, along with the NRB of £650,000 should allow a married couple to eventually pass on estates worth up to £1m tax-free.
This all sounds very generous but there are conditions. We are extremely concerned that people who own their home may miss out on the new allowance, simply because their Wills are not up to date.
Trusts known as Discretionary Trusts do not qualify for the new IHT allowance
Previously families with significant assets used discretionary trusts to mitigate potential IHT on second death; or provide for children of a former relationship. These provisions still apply in many Wills.
“The new RNRB allowance is only available when the family home is inherited by a direct descendent (i.e. children or grandchildren).
Discretionary trusts will not qualify for RNRB as the trustees effectively take on the legal ownership of the asset. It is not directly inherited by the beneficiaries.”
Taking appropriate legal advice now with regards to your Will is therefore key.
Not all trusts are affected but we think it is sensible for anyone who has implemented tax-planning solutions in their Wills to speak to an advisor about maximizing their IHT allowances.
At Tallents Solicitors, we have a tax advisor available, Malcolm Ellison, who can assist our Private Client team with trust and estate tax planning, including Capital Gains Tax on property. He has a wealth of experience gained over 20 years, so clients know they can rely on his expertise when they need it.