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New Inheritance Tax rules

New Inheritance Tax rules

For many years the number of estates forecast to pay inheritance tax has been rising. Last Summer George Osborne announced in his budget speech that he would fulfil his longstanding promise to take the family home out of IHT for all but the wealthiest. He boldly announced “You can pass up to £1m to your children free of inheritance tax. No more IHT on family homes.”

The statement was widely reported and many of our clients have been lead to believe that they now have a £1m nil rate band. Not quite so simple.

Basically the residence nil rate band (RNRB) will apply to individuals who pass their residential property to their children when they die. The full amount (£350,000 for a married couple which on top of their £650,000  allowance amounts to £1m) is being phased over 5 years- in April 2017 for example a couple will be able to claim £100,000. It will apply if the second spouse dies after April 2017 regardless of when they were widowed. Single people will only get half of the £1m nil rate band. There are a lot of complications. With a few exceptions the property must be left to children (including stepchildren and foster children) or grandchildren- and so those without direct descendants will not benefit; couples who are not married will need to leave their half share of the property in their will (not through a gift or deed of variation) directly to their children; and wills which leave to children at, say 21 or 25, will also not qualify. If the main residence you own is less than £350,000 you can only claim the value of that property (although there are safeguards if you have down-sized from a more expensive property in the past).

It will now be essential to keep good records of sales of any previous properties- we would suggest a completion statement kept with a copy of your will if you are downsizing or selling to go into care. As you will have gathered it’s complicated. There will be some who win, but by all means not everyone. Anyone who may be liable to inheritance tax should now visit their will before next April to ensure that it will comply with the new tax rules. Don’t expect your solicitor to get in touch with you first.

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