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Recent studies show that one in 65 adults in the UK is now a millionaire. With this rise in people’s fortunes, together with the freeze on the current Nil Rate Band this means that potentially more and more people will be pushed into Inheritance Tax (IHT) charges.
The current threshold for the Nil Rate Band is £325,000 and this has been frozen until 2021. This means that people who have wealth in excess of this amount will find their loved ones suffering IHT at 40% on the excess over this amount in the unfortunate event of their death.
The good news is the introduction of the Residence Nil Rate Band (RNRB) which is being phased in from April 2017. This may help to take some of these ‘new millionaires’ out of the realms of IHT charges. Let us consider the impact that this could have.
To recap, prior to the introduction of this new RNRB, there were two types of Nil Rate Band (NRB):
A married couple/civil partnership would therefore only have to pay IHT on death if the value of their combined estates exceeded £650,000. The new RNRB would effectively increase this amount to £1m. Here’s how it works:
From April 2017 the new RNRB will be phased in giving each person an additional £100,000. This will increase over a four year period so that by 2020/21 each individual will have an additional £175,000 to add to the existing £325,000 NRB giving a total relief of £500,000 each.
In order to qualify for the RNRB a number of conditions must be met including:
The RNBR can be transferred to a surviving spouse/civil partner to the extent that it has not been utilised on first death (it is even possible to do this where first death was pre April 2017).
The new RNRB could therefore prove to be a very useful additional relief saving couples up to £140,000 in tax. There are also a number of planning opportunities for people with more than one residential property or where the estate exceeds the £2m threshold.
For more detailed information, or to find out how best to arrange your affairs to maximise the relief please get in touch with one of our Tax Consultants who would be more than happy to help you.
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