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The new Inheritance Tax Residence Nil Rate Band

21st December 2015

In the summer 2015 budget George Osborne announced plans to increase the Inheritance Tax (IHT) Nil Rate Band to £1 million by 2020/21 by the introduction of a ‘Residence Nil Rate Band’. These provisions were included in the Finance (No. 2) Act 2015 which has now received Royal Assent.

Inheritance Tax is currently payable on death at 40% on the value above £325,000 for individuals and £650,000 for married couples and for those in civil partnerships.

The existing Nil Rate Band of £325,000 will be supplemented by an additional Residence Nil Rate Band of £100,000 for deaths after 6th April 2017 rising by £25,000 a year to £175,000 from 6th April 2020. Thereafter, the combined Nil Rate Band for a married couple or those in a civil partnership will be up to £1 million, or £500,000 for individuals.

The Residence Nil Rate Band will be available where a person’s property is passed on death to a child or grandchild, known as ‘lineal descendants’. To qualify, the property must have been the person’s residence at some point. However, it does not matter if the property was subsequently let.

Where a person sells their property to move into a care home or to downsize, they will still benefit from the Residence Nil Rate Band based upon the value of their previous property. The full details of this provision are yet to be finalised and are expected in March 2016.

The existing £325,000 Nil Rate Band can be transferred to a surviving spouse if it is not used on the first death to make a total of £650,000 available on the second death. This is the same for the Residence Nil Rate Band.

Where a person leaves their property to their surviving spouse the Residence Nil Rate Band will be transferred to the spouse on death. The transferred amount available will be the amount of the Residence Nil Rate Band available as at the date of the second death.

There is a taper applicable where a person’s estate exceeds £2 million. For estates over this value the amount of Residence Nil Rate Band available will reduce by £1 for every £2 over £2 million.

It is important to seek specialist legal advice when considering your estate and the IHT that may ultimately be payable. IHT can be avoidable in some circumstances but time is always of the essence so seek advice sooner rather than later.

Ursula Watt. Partner & Head of private client department

Business, General, George Ide, Investment, News, Private Client, Residential Property Conveyancing, Wills and Probate
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