The most eagerly awaited addition to the Inheritance Tax bill for those close to death or awaiting their hefty inheritance! But before you get too excited, here’s a few things you should know.
1. First and foremost, the legislation was introduced in the Summer Finance Bill 2015 and published in July. However, it still may undergo significant change before it receives the royal assent. As it stands at the moment;
2. The new residence nil-rate allowance is only available to people who die on or after 6 April 2017 with a ‘qualifying residential interest’ which is ‘closely inherited’. If you die before this date, apologies, you’ve missed out. Much like the current nil rate band, it can be carried forward to a surviving spouse or civil partner.
3. Your property must actually be your residence. For those with city pads and second homes in the country, at present your personal representatives will have the choice of which residence to apply your nil-rate band to. This will not however apply to buy-to-let properties (unless you actually lived there for a period prior to your death).
4. The use of the term ‘closely inherited’ translates to = the nil-rate band WILL ONLY APPLY where the interest is being inherited by children. Parents, brothers, sisters, nieces, nephews, you’ve dipped out on this one!
5. This one’s a real cracker. To those of you that (like myself) considered the new nil-rate band to give you £1million worth of relief on your property, think again. In fact, the value of residence nil-rate amount which currently stands at £325,000 will increase by £100,000 in 2017/18, rising by £25,000 each tax year until it reaches £175,000 in 2020/21. In layman’s terms, by 2020/21 each spouse will have a nil-rate band of £500,000. To equate to the £1million band, the first £500,000 must be transferred to the surviving spouse on death.
There we have it. 5 things you should know about the new rule. But, don’t go getting too disappointed just yet as no doubt it will go through 100 different changes before we actually see it enforced.
Evangeline is a paralegal at Posada & Co. She mainly deals with property and private client matters. A farm-girl at heart, she hails from the Isle of Wight and currently lives in East London with her sister.