Inheritance tax planning has not seen many dramatic changes in recent years with the standard nil rate band neither increasing nor decreasing majorly. The nil rate band currently sits at £325,000, which means that this part of the deceased’s estate will be tax-free up to £325,000. However, 2017 saw the introduction of another type of inheritance tax relief which should reduce the tax burden on a deceased’s estate in some cases.

While the most obvious thing to do may have been to increase the level of nil rate band available from £325,000, unfortunately this new relief isn’t quite as straightforward as that.

The new residence nil rate band was introduced in April 2017 and means that the first £100,000 of a home’s value will be exempt from inheritance tax where the property is passing to a direct descendent. So, effectively this means that if you plan on leaving your residence to your children in your Will, then your estate will have a nil rate band of £425,000 and only be liable for tax after this threshold has been reached. The threshold of £100,000 is set to increase by £25,000 every year until it reaches £175,000 in the tax year 2020-2021. This means that for the tax year 2018­-2019 the residence nil rate band will be £125,000. The overall relief available including the nil rate band will be £350,000. The nil rate band of £325,000 is frozen until the tax year 2021-2022. 

So, what’s the catch?

Technically, there isn’t a catch but there are a few exclusions you should be aware of.

Although “direct descendants” is widely defined within the legislation, the property relief is only available to those who leave their residence to their “direct descendants”.

Where the value of an estate exceeds £2 million, the residence nil rate band is reduced by £1 for every £2 that the estate is valued over £2 million. This is even the case where the property in question is worth substantially less than this figure.

The introduction of the residence nil rate band means that many more estates may now not be liable to (or liable for substantially less) inheritance tax. It also means that by 2021 some estates worth £1 million will not be liable for inheritance tax.       

If you think that your estate could potentially benefit from the relief, it is vital that you ensure your affairs are in order and that your Will allows for the relief to be claimed.

Our Private Client department would be delighted to assist you in ensuring that your affairs are in order and working out the most tax efficient strategy for your estate.

Contact our Expert Wills Solicitors Clarkston, Newton Mearns, Giffnock, Netherlee, Eaglesham, Carmunnock, Stewarton & Southside Glasgow

For expert legal advice on these issues and all aspects of estate planning, then contact our specialist will writing lawyers today. Call us on 0141 280 7686 or complete our online enquiry form.