No Children, No Allowance? Not If We Can Help It!

The Residence Nil Rate Band:

At current rates, everybody has an individual initial Inheritance Tax allowance of £325,000.00 that applies against their Estate. Anything up to this amount is passed to your beneficiaries’ tax free. It doesn’t matter what assets your Estate consists of, or who you pass it to, the allowance simply applies.

In recent years, the government have introduced an additional allowance known as the Residence Nil Rate Band allowance. This initially started as an extra £100,000.00 allowance and has increased each year to its current maximum of £175,000.00, where it will stay for the foreseeable future. However, this allowance is not as flexible as the ordinary Nil Rate Band allowance as it has a few caveats to it.

Firstly, you must own an interest in a property that you have used as your main residence. Then you must leave that interest to “lineal descendants”, which the government largely defines as your children, grandchildren, step-children, adopted children and foster children. You also can’t leave the property to your children in most types of Trust without forfeiting the allowance.

The government has stated that they expect this allowance will mean “the proportion of estates with a residence being left to direct descendants may be expected to increase as people change their wills over time so that their estates can benefit from the main Residence Nil Rate Band to a greater extent.”[i] Meaning that it helps deter families tying up assets in trusts and ensuring the next generation get the helping hand they need.

The Problem:

The main issue with the legislation is that it disproportionately effects the increasing number of people who do not have children. According to a Telegraph report,[ii] in 2016 nearly half of women aged below 30 did not have children, and 18% of women aged 31-45 were childless too. Using Statista records[iii] from 2018 this means that of the total women aged 20 to 40 years, there are approximately 5.94 million women who do not have children of their own. Of course, this figure would increase considerably if we include childless men too.

If a person is not able to claim the Residence Nil Rate Band then it could mean their beneficiaries miss out on saving £70,000.00 in tax for individuals (or £140,000.00 for couples). This saving could make a huge difference to the younger generation who are notoriously struggling to get on the property ladder themselves. However, the government claim they have “no evidence to suggest that the measure will have any significant adverse equalities impacts”.[iv]

The Solution:

Nearly all of the Clients that we see who do not have children of their own, tell us that they want to leave their Estate to their nieces and nephews because they “consider them to be like children” of their own. If the government’s true intention is to ensure the passing of assets down generations, then surely there is no reason why they can’t change the legislation to include nieces and nephews (by blood or marriage) too.

That is why we are petitioning the government to make a change to the legislation accordingly. If you, or anyone you know could benefit from this change and would like to sign the petition the link can be found here:-

https://petition.parliament.uk/petitions/326525

If you have any questions about this petition, your Estate or the Inheritance Tax regime, please do not hesitate to contact Jade Gani at this office on 01753 486777 or [email protected]

References

[i] https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band

[ii] https://www.telegraph.co.uk/news/2017/11/24/proportion-women-never-have-children-has-doubled-generation/

[iii] https://www.statista.com/statistics/281174/uk-population-by-age/

[iv] https://www.gov.uk/government/publications/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band/inheritance-tax-main-residence-nil-rate-band-and-the-existing-nil-rate-band

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