Stand-out Q – new IHT & family home rates…

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MON, 05 FEB 2018

Our Technical Hub provides access to a wide range of pension tax and trust technical resources. Every now and then we post tweets covering stand out questions from our technical content and our answers in case others might also find them helpful. As Twitter’s character restrictions only allow for the bare bones of the Q&A we link to the details here, too.

Question:

What does the residence nil rate band mean for my clients?

Answer:

All UK domiciled individuals have a nil rate band of £325,000, fixed until 2020/21. In addition, from April 2017 onwards an additional nil rate band will be available to use against the family home which is passed on to other family members on death.

The rates are as follows:-

blog table

This will also be transferrable to the surviving spouse or civil partner on the first death. This means that an individual will be able to transfer up to £500,000 on their death without incurring an inheritance tax charge, or up to £1 million on the second death (2020/21).

The allowance will be available to individuals who leave their house to direct descendants such as their children and/or grandchildren. The new allowance will not be available to all, however. The allowance will taper away for those with estates worth £2 million, and the family home allowance will taper away entirely once the estate is worth £2.35 million in 2020/21.

The allowance will still be available where a person downsizes, gifts or sells their property on or after 8 July 2015 and assets of an equivalent value as the allowance in force at the date of death are passed on death to direct descendants.

Example
Dave owns a home worth £200,000. He downsizes to a home worth £100,000 and dies in 2020/21. This means that, so long as Dave leaves the home and £75,000 of other assets (£75,000 being the difference between the allowance and the value of the home) to his direct descendants, there will be no inheritance tax liability on these assets.

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