In the recent Budget, a small but significant change has been made to the inheritance tax relief that applies to passing on the family home. Here's what you need to know.
An allowance known as the residence nil rate band (RNRB) allows individuals to leave their house to direct descendants (ie children and grandchildren) potentially free from, or partly free from, inheritance tax (IHT) provided certain conditions are met. The current tax-free threshold is £125,000 and will rise to £175,000 by April 2020.
As many people choose to move to smaller, more manageable properties, the legislation does make some allowances for this. If an individual downsizes to a less valuable home or has sold their home (possibly to move into a residential home or to live with a relative) on or after 8 July 2015, and leaves assets of an equivalent value to direct descendants on death, then the availability of the RNRB band will be preserved.
However, the rules are complex and the changes introduced by the Budget are intended to ensure that the relief is working as originally intended.
What has changed?
The changes introduced clarify the working of the downsizing rules (where there is a lower value at the date of death or the property was sold) and also provide certainty over when a person is treated as ‘inheriting’ property. Although these are small and technical changes, these changes should benefit individuals by making it easier to pass on the family home to direct descendants without a tax charge.
Do I need to change my Will to make use of the allowance?
It is sensible to review your Will regularly, but it is also important that you do not miss out on the allowance due to the current drafting of your Will. If you have any questions about whether or not you will qualify for the allowance please get in touch.