The new Residence Nil Rate Band (RNRB) which comes into effect this April means that you can now plan to hand down your family home with either a zero bill or a significantly reduced one than the current inheritance tax (IHT) rules permit.
There are various restrictions to how this will work in practice. In simple terms, it means that the current IHT threshold of £325,000 for a single person and £650,00 for a married or civil partnership couple will remain but that there is an additional (and separate) allowance of £100,000 (available per person, provided that certain requirements are met
This additional allowance will increase year-on-year by £25,000 until it reaches £175,000 and then continuing in line with inflation.
It’s important though to understand when and where it can be applied.
There are three key criteria to meet:
- The property must form part of the deceased’s estate;
- he or she must have lived in it at some point (there is no minimum period in which they must have lived in it, but this may rule out buy-to-let properties for example);
- and the property or a share of it must be passed to direct descendants.
For those with children of their own, this quite obviously includes children, grandchildren and great-grandchildren. However, it is not limited to blood relations and so also includes step-children, adopted or fostered children, or any children that the deceased had been appointed guardian of, even if they are now over the age of 18.
Widening the net even further, the spouses and civil partners of any of these descendants are also included, even if the descendant themselves has died.
Siblings, nephews or nieces of the deceased are not included. They may still be included in the will, perhaps receiving a part share of a property, as the RNRB applies to the value of the share that’s inherited by the direct descendants.
The new RNRB is only applicable for deaths on or after 6th April 2017. The rate is, however, transferable between married and civil partners and if one partner has already died prior to this date, their unused RNRB will be available to be carried forward to the estate of the surviving partner. However, the allowance must be claimed and it isn’t automatically available.
There are many other points to consider with RNRB, although they won’t apply to everyone. For example, the value of RNRB tapers away where the estate is worth more than £2 million. That’s straightforward but it can become tricky where the deceased sold their property prior to their death to downsize or gave it away and continued to live in it. The key point here is that they must have done this since 7th July 2015 to qualify. It becomes increasingly complex as to whether RNRB will apply where trusts are involved.
For advice on preparing or changing a will to maximise the tax efficiencies that can be made, please call our team at legalmatters on 01243 216900 or email us at firstname.lastname@example.org.
Around a third of parents are unwilling to leave an inheritance to their children or provide them with financial aid, as they are concerned that divorce may mean that money leaves the family.
This is according to research from Investec Investment & Wealth, which found that 14% of parents had little or no confidence that their children’s marriages would last a lifetime.
It is perhaps an understandable concern, with around 42% of marriages failing, according to the Office for National Statistics.
There are, however, steps you can take to ensure that your money ends up in the right hands – irrespective of how successful your child might be at finding a long-lasting partner.
Make use of your gift allowance
The research found that one in six parents are opting to give their loved ones small financial gifts to help with the cost of living, rather than large lump sums.
It’s important to remember that everyone has a £3,000 annual gift allowance, covering financial gifts you can hand over each year, free of inheritance tax. On top of that you can give away up to £250 to any number of people each year.
Skip a generation
According to the research, around 14% of parents are skipping a generation and instead looking to leave assets to their grandchildren.
Put it in a lifetime trust
The study found that one in seven parents are considering putting the money into a discretionary trust, which could be a useful way to protect the money from a divorce.
With a discretionary trust, it is up to the trustees to determine how and when any potential beneficiaries may be able to access the cash. You can appoint yourself as the trustee, so that you have final say over where the money goes, or you can go for an independent trustee. What’s more, the money within the trust is classed as separate from the estate of the person who is benefitting, so it’s free of Inheritance Tax in their estate. Discretionary trusts so have their own peculiar tax regimes though so specialist advice is needed.
Options on Death
It’s important to consider exactly how you want your assets to be divided up among your loved ones, and get those wishes down in the form of a comprehensive will. That will may too contain trusts to help protect your estate from falling into the wrong hands through divorce etc. Speak to our team today at legalmatters and call 01243 216900 or email us at email@example.com to get your will in place.