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Save up to £140K of Inheritance Tax with a correctly drafted Will

4th March 2020 by Save up to £140K of Inheritance Tax with a correctly drafted Will

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We recognise Inheritance Tax is often a subject no one wants to discuss, however it is vital you know what tax relief is available to you to ensure you pass on as much as possible to your loved ones.

Background on the Residence Nil Rate Band (RNRB)

In 2015 the Conservatives promised that married couples and civil partners would benefit from a combined inheritance tax relief of £1,000,000 by 2020; a sharp increase from the £650,000 worth of nil rate band relief that was available at that time.

In 2017, RNRB was introduced to execute the Conservatives’ promise and bring about the increase in inheritance tax relief available; by alleviating inheritance tax liability on an estate as a result of home ownership.

As per the below chart, RNRB has been phased in since its introduction.

Tax year Nil Rate Band Residence Nil Rate Band Total for an individual Total for a married couple or civil partners
2016/17 £325,000 Nil £325,000 £650,000
2017/18 £325,000 £100,000 £425,000 £850,000
2018/19 £325,000 £125,000 £450,000 £900,000
2019/20 £325,000 £150,000 £475,000 £950,000
2020/21 £325,000 £175,000 £500,000 £1,000,000

Important to Note:

Any unused RNRB from a predeceased spouse or civil partner can be claimed, meaning a maximum of two RNRB’s can be applied, in addition to claiming two full nil rate bands of £325,000.

From April 6th 2020, the RNRB available will be increasing to £175,000 per individual meaning that married couples/civil partners could have a combined inheritance tax relief of £1 million on the survivor’s estate.

Moving beyond the 2020/2021 tax year, the maximum RNRB will increase in line with inflation (based on the Consumer Prices Index).

How do you qualify for the RNRB?

An estate must satisfy the following conditions in order to be entitled to full RNRB when an individual passes away:

  • the individual owns a home, or a share of one, so that it is included in their estate;
  • the individual’s direct descendants, such as children or grandchildren, inherit the home, or a share of it; and
  • the value of the estate is not more than £2,000,000.

An estate shall also be entitled to RNRB when an individual has downsized to a less valuable home or sold or given away their home after 7th July 2015.

If one of these conditions is not satisfied, for example, a married couple/civil partners with children did not own their home, RNRB will not be available and the maximum tax relief available on the survivor’s estate would remain at £650,000.

If all of these conditions are satisfied, for example, a married couple/civil partners who own their main residence and leave everything to each other on first death and then to their children on second death, there could be a combined inheritance tax relief of £1 million on the survivor’s estate.

RNRB is only available where the main residence passes to children absolutely and as such, if the family home passes into a trust then the relief may be lost, even if children or grandchildren are listed as beneficiaries of the trust. It is therefore important that care is taken when drafting Wills to ensure than an eligible estate is able to benefit from RNRB as this could save an estate up to £140,000 worth of inheritance tax.

If you would like further information or wish to discuss whether your estate is eligible to qualify for RNRB under your Will, please contact our Private Client Team on 01202 755980.


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