Inheritance Tax and Estate Planning: The Residence Nil-Rate Band
Inheritance Tax ('IHT') is a 40% tax levy charged after someone dies, should their estate exceed certain levels. It is normally payable by the estate prior to distribution and therefore effectively reduces the amount available to the beneficiaries. A number of IHT reliefs do exist, which can depend on your circumstances and/or how your Will deals with the distribution of your estate.
In addition to potential reliefs available to IHT each person has an IHT free allowance called a Nil Rate Band. The Nil-Rate Band ("NRB") is currently £325,000. If you are married or in a civil partnership then any unused NRB can also be transferred to your surviving spouse or civil partner. This means that the first £325,000 of a single persons Estate will not be subject to IHT. Upon the second death of a married couple or civil partner up to the first £650,000 will be IHT free.
There is an additional IHT allowance called the Residence Nil Rate Band ("RNRB"). The RNRB was introduced in 2017 and allows additional IHT relief to be claimed, up to the value of £175,000 if your circumstances fit certain criteria and your 'residence' passes to permissible beneficiaries. The RNRB can also be transferred to a surviving spouse or civil partner. Therefore if specific criteria are satisfied a potential maximum of £350,000 RNRB could be available to be claimed, at the time of the second death. Consequently, if used by an estate to its maximum the RNRB can save £140,000 in IHT.
The RNRB has increased the IHT available to people's Estates, but has made Estate planning and Will writing more complex and the need for Wills to be reviewed more important. It has always been important to regularly review your Will to ensure it meets with your wishes. However, particularly if your Will was made before 2017, due to the introduction of the RNRB, you should speak with an expert to see if you need to take any action and find out whether any Inheritance Tax can be saved by doing so.
The expert lawyers in the Wills, Tax and Probate Department at Enoch Evans LLP have a wealth of experience in advising upon high value Estates and reducing Inheritance Tax. The team at Enoch Evans LLP provide holistic advice and will outline all of the options available to you in your particular circumstances . The Department based in Sutton Coldfield and Walsall are also experts in Wills, Lasting Powers of Attorney, Estate Administration and Trusts. TheDepartment is accredited by the Law Society with membership of its elite Wills and Inheritance Quality Scheme ('WIQS').