Will you qualify for the additional Inheritance Tax threshold?

The introduction of the new Residence Nil Rate Band (RNRB) is now operational, but not everyone will benefit from the additional thresholds available.

As a reminder, Inheritance Tax (IHT) is a tax due on the value of an estate (including property, money and possessions) of someone who has died and where the total is worth more than £325,000 (known as the Nil Rate Band).

There are specific rules in place to see if an estate qualifies and to assist, HMRC has created an online calculator to enable you to work out how much additional threshold the estate may be entitled to, if any, which you can access here: https://www.tax.service.gov.uk/calculate-additional-inheritance-tax-threshold

The maximum amount of the additional threshold for 2017/18 is £100,000 and the person who died (on or after 6 April 2017) must have left their home, or a share of it, to their direct descendants.

According to HMRC, for the purposes of this allowance, a direct descendant of a person is deemed to be:

  • a child (including adopted, step and fostered)
  • a grandchild
  • or other lineal descendant of that person
  • a spouse or civil partner of a lineal descendant (including widow, widower or surviving civil partner)

It’s worth remembering that for estates valued in excess of £2 million, the additional threshold (and any transferred additional threshold) will be tapered down by £1 for every £2 over £2 million.

An estate may also be entitled to the additional threshold when an individual has downsized to a less valuable home, or sold or given away their home if it occurred after 7th July 2015. Only one home can qualify for the additional threshold, so if more than one home has been lived in, the executor or administrator can choose which property to apply the allowance to.

For those who may have undertaken IHT planning using a trust arrangement, the availability of the additional threshold is dependent on the type of trust used. This is because certain trusts affect whether HMRC treat the home as part of a person’s estate for IHT purposes. It may also affect whether HMRC treat that person’s direct descendants as inheriting the home too, so it is important that you discuss how the additional threshold applies with a solicitor or professional adviser who can be clear about trust law.

What may appear to be a relatively simple allowance could become complex dependent upon your personal circumstances and any planning you have undertaken in the past, so if you’d like help reviewing your circumstances, please contact our Financial Planning Consultants at an office near to you.

 

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