It was a headline grabbing announcement when as part of the Conservative Party pre-election manifesto George Osborn pledged that people would be able to leave their homes without paying inheritance tax on £1m by 2020. The IHT Residence nil rate band (“RNRB”) was introduced from 6 April 2017 at £100,000 for 2017/18 increasing to £175,000 for 2020/21.
The RNRB does mean that generally couples with the family home as the only asset at the time of second death should be able to leave it to their children free from IHT, even here in the South East. However, there are many reasons why it might not be available or as simple as it seems.
The Property is not “closely inherited”
This means it is left to direct descendants such as children, grandchildren or great-grandchildren.
The Property has not been a residence of the deceased
The RNRB can only be used in respect of one residential property which has been lived in by the person at some point. This could perhaps have an impact if each partner had a property prior to moving in to one of them together.
The value of the estate is above the threshold
There is a tapering of RNRB where the value of the estate is above £2m, £1 of relief is lost for every £2 above the limit. Items are included in the estate at their full value before applying any IHT reliefs such IHT would not be chargeable on them, so this could be an issue where the individual holds significant business assets.
The property is valued at less than the RNRB
It may be that the property is worth less than £350,000 (assuming two people’s allowance available in full) in absolute terms. Any unused RNRB is not available to cover IHT on any other assets that may total more than the standard Nil Rate Band.
Alternatively, it may be that there is a mortgage or other charge on the property that brings the value below the maximum RNRB.
The claim is not made properly
The application of the RNRB and the claim to transfer any unused RNRB from the first death to the second are not automatic and are subject to the forms being completed correctly within the allowed timescale.
It is worth considering a review of your estate to ensure that you do not unexpectedly fall into any of the pitfalls above. You should also keep this regularly under review for any changes in circumstances and/or legislation. Please speak to us if you would like a review.
Emma Humpage – Tax Principal