The Residence Nil Rate Band

Jo Dutton of CLT discusses how the introduction of the new residence nil rate band will affect families the number of people seeking advice on this subject.

An interesting article featured in Today’s Wills and Probate recently, contained a quote from Simon Ruthers, a manager for an Oxford-based tax efficient investment firm who said: “If you are a homeowner and you own an average detached house that is going to absorb the nil rate band. If you have assets above your main residence, then you have got an inheritance tax problem. Any family only pays a significant IHT bill once. Those families who have paid IHT at some point are very aware of the issues.” Mr Ruthers anticipates an increase in people seeking inheritance tax advice as a result of rising house prices.

It will be interesting to see how the introduction of the new residence nil rate band will affect the number of people seeking advice on this subject. At present, individuals with an estate worth over £325,000 (the nil rate band) may have an estate liable to inheritance tax (currently 40% on the amount that exceeds the nil rate band) depending on whether or not there are any reliefs or exemptions available. Where an estate is left to a spouse or civil partner, there will be no inheritance tax payable regardless of the value of the estate. Additionally, in this scenario, as a result of the ‘transferable nil rate band’, on the death of the survivor, the survivor’s estate can benefit from, essentially, two nil rate bands i.e. £650,000 and most advisers are familiar with this.

The new residence nil rate band is an additional nil rate band which can be used when a residence is passed on death to a direct descendant (in other words a child of the deceased and their lineal descendants). This will take effect on relevant transfers on deaths occurring on or after April 2017 at a rate of £100,000 and will increase each year onwards. The idea behind this is to reduce the burden of IHT for most families by making it easier to pass on a family home without a tax charge. So far, so good. However, as with much legislation, things are not quite as simple as they may initially appear. Draft legislation published towards the end of last year which looks at the position where tax payers have downsized or disposed of a property completely before death, does appear to be quite complicated, and Andrew Tyrie, chairman of the treasury select committee has been reported as saying that tax lawyers are likely to be the main beneficiaries as a result of the convoluted wording.

It does seem therefore, that the new legislation may well result in a rise in queries from clients, wondering what the impact is for them and their estate’s IHT liability. Professor Lesley King looks at this topic in greater detail in her forthcoming webinar. Further details can be seen on: http://www.clt.co.uk/webinar/the-residence-nil-rate-band-webinar-preorder/

This article was submitted to be published by Central Law Training as part of their advertising agreement with Today’s Wills & Probate. The views expressed in this article are those of the submitter and not those of Today’s Wills & Probate.

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