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New Inheritance Tax Residential Relief

Published on 2 May 2017 | Modified on 6 December 2022

Written by Stacey Bennett

On 6th April 2017 the new ‘residential nil rate band’ came into effect. When it was initially announced, it was widely reported that for some, it would (eventually) be possible to give away up to £1,000,000 of your estate on death without being subject to any Inheritance Tax (IHT). If only it were that simple. Firstly the reports are misleading in that this level of relief will not be available until April 2020, and secondly, they will only be available to certain people – so who actually benefits from this new relief?

  1.  Parents and Grandparents – for the new relief to apply, the property in question must be being inherited by a child, a step-child, a grandchild, or the spouse of a child/grandchild. But Grandparents, be wary – this doesn’t apply in all circumstances – such as if the property is left to your grandchildren on trust until they are 21 or 25.
  2.  Home owners – the relief must be used against a property that you’ve (at some point) lived in and treated as your residence. However, the relief available can only be used against one property, even if the value of that property does not use up all the relief that you are entitled to. For example, if you were entitled to £100,000 in relief, but you have 2 properties each worth £75,000 – you can only apply the exemption to one of those, and would therefore only benefit from a relief of £75,000.
  3. Spouses – any unused nil rate bands, including any unused residential nil rate bands, can be transferred to your surviving spouse. So a surviving spouse would be able to give away the equivalent of 2x normal nil rate bands and 2x residence nil rate bands at the time of the second death – so long as the criteria for the residence nil rate band have been complied with. This is where the £1,000,000 figure may appear, but only from the year 2020. In the current financial year, the maximum a surviving spouse could benefit from (and only if the above circumstances apply) is £850,000.

The Small Print – there are other restrictions that apply to this relief, relating to when the property is left in trust, when estates are worth over £2,000,000, and when downsizing during your lifetime.

In summary – the new rules don’t quite -necessarily allow you to give away £1,000,000.00 without incurring any inheritance tax liabilities, but they do allow for parents and grandparents to gift away more of their estate than they were previously able to, before any inheritance is payable. For many families, this will mean more assets passing to their loved ones, and less going to HMRC.

If you think you might benefit from this new tax relief, and would like to discuss how it might effect your Will or your Estate Planning, please contact one of our Wills and Probate Solicitors on 01270 625478.

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