While you might not want to think about how much inheritance tax (IHT) you will have to pay when you die, a little bit of regular planning is always a good idea and could help you save inheritance tax in the long run.
Just as you would regularly review your financial affairs, it is advisable to regularly give your will a health check to make sure it still works for you and takes advantage of any new tax allowances, such as the new residence nil rate band.
Marie Tisdale, director of wills and probate at Ansons Solicitors in Lichfield, Staffordshire, explains how the new residence nil rate band works and advises all homeowners to review their wills to make sure there is nothing preventing them from taking advantage of it.
Every individual has a nil rate band of £325,000 before any inheritance tax will become due on their estate. However, if you are married or in a civil partnership then there is no IHT to pay on your estate provided you are passing it to your surviving spouse. Then, on the second death, the survivor’s estate can use that person’s nil rate band and the first nil rate band – a total relief of up to £650,000.
In addition, in April 2017, a new IHT relief was introduced called the residence nil rate band (RNRB). For tax year 2018/2019, up to an additional £125,000 per person may be claimed provided their property or their share in it is left to a direct descendant. As with the nil rate band; for married couples and civil partners, any unused RNRB from the first death can be transferred to the surviving spouse or civil partner’s estate. The RNRB is available to all individuals, married couples and civil partners who leave their property, or a share of it, to a direct descendent. A direct descendant is a child, children (including a step-child, adopted child or foster child) or grandchildren of the deceased and their descendants. If you have given away your home or downsized after 7 July 2015 your estate may still be entitled to the additional RNRB, or part of it.
There are restrictions to the RNRB relief. An individual or couple without children or grandchildren will not be able to claim the RNRB, as they are not leaving property to direct descendants. Also, the RNRB is limited for estates worth more than £2 million after which it is gradually withdrawn.
You may need to review your wills and take some IHT planning advice. Although the rules work with most people’s wills; some wills may need to be changed to ensure that their estate will benefit. For example, if your will contains a discretionary trust then the RNRB cannot be claimed. Also, if you are a grandparent and you have left your estate on trust for grandchildren when they are over the age of 18, this will need to be changed to be able to be able to claim the RNRB.
If there is any inheritance tax payable on an estate this is calculated and is paid (at least in part) as part of the probate process.
At Ansons, our wills and probate specialists can guide you through every step of the process and let you know whether there is any inheritance tax payable on your estate.
For a confidential discussion on inheritance tax planning, contact Marie Tisdale on 01543 267981 or email firstname.lastname@example.org
The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. The law may have changed since this article was published. Readers should not act on the basis of the information included and should take appropriate professional advice upon their own particular circumstances.