In his Summer Budget, George Osborne trumpeted the arrival of the £1 million ‘nil rate band’ (NRB). The NRB is the maximum amount everyone can leave on their death without paying inheritance tax (IHT). But the £1 million is actually per married couple/civil partners and won’t be available fully for another 5 years!
IHT is often seen as a tax on property. With high value property prices in the South East, if you die owning property in this part of the world, your estate is more likely to have to pay IHT than if you live in the North. The new arrangements will therefore provide at least some relief. But beware of the small print! Here are some of the details which are now known:
1. The current NRB is to remain at £325,000 per person until 2021.
2. There is to be an additional ‘main residence nil rate band’ (MRNRB) per person worth £175,000 but this will not apply in full until 2020/21. This will take the maximum available IHT free amount, 5 years from now, to £500,000 per person, or £1 million per married couple/civil partners.
3. The MRNRB will only be available for people who die after 5th April 2017. It will initially be restricted to £100,000 per person increasing by £25,000 each year until £175,000 is reached in 2020/21.
4. The MRNRB is (like the “normal” NRB) to be transferable between spouses/civil partners, if it is unused when the first of the couple dies.
5. The MRNRB is only available where the property concerned passes to a ‘direct descendant’, i.e. a child (or children) of the deceased and lineal descendants. It is not yet known whether this will include trusts for direct descendants.
6. The MRNRB is limited to one property, in which the deceased must have resided at some stage. A buy to let property, therefore, will not qualify.
7. If the net estate of the deceased exceeds £2 million the MRNRB will be tapered away at a rate of £1 for every £2 above that limit.
8. Proposals are to be introduced to preserve the MRNRB which would otherwise be lost if the deceased downsized or ceased to own a residence after 7th July 2015.
The full detail of how the new MRNRB will operate will no doubt take a while to resolve. Taylor Walton will provide further advice on this and other tax related issues. Please don’t forget to keep your Will under review and also get Lasting Powers of Attorney in place if you have not done so already. Speak to us for advice on all of these issues