| INHERITANCE TAX OVERVIEW
Main Residence Nil Rate Band or Residence Nil Rate Band (RNRB)
Financial Planning Consideration With the Covid-19 pandemic grabbing the headlines, the increase to the Residence Nil Rate Band to £175,000 may have passed you by. This is good news, right? It is the final £25,000 annual rise since the RNRB commenced in 2017/18. The additional benefit comes with implications that must be understood. Some remain confused – as an example, some people understand their homes are now exempt from Inheritance Tax, regardless of the value (Source – a recent study by Octopus 1). There are two starting criteria to determine whether the RNRB applies:
What counts as a QRI? The RNRB is only available to individuals or couples who have a QRI when they die, or who had one before. QRI means ownership of a residential property that has been the deceased’s home at some point. Note – the property does not have to have been the deceased’s home at the time they passed away, but a Buy-to-let property would not qualify but a property that was let if the deceased had entered Nursing Home could qualify. What does ‘closely inherited’ mean? ‘Closely inherited’ means inherited by a direct descendant. The following beneficiaries would qualify as direct descendants:
The RNRB does not apply to homes transferred before death An important distinction between the RNRB and the £325,000 nil Rate Band is that the RNRB only applies to homes owned when a person dies. So, if the home is transferred to children as a lifetime gift, the RNRB will not be available to offset against that transfer. By contrast if the home is left to children upon death the RNRB will be available. Homes settled into Trust are unlikely to qualify If you have set up your Estate Planning so that hour home settles into a Discretionary Trust, it is unlikely that the RNRB will be available in most instances, even if the potential beneficiaries are children or grandchildren. The rules are complex and specialist advice should be sought to make sure your previous planning delivers to your expectations. In addition, the RNRB will not apply if the home is transferred into a Discretionary Trust during a person’s lifetime. Widows and Widowers may need to carry out some extra planning The RNRB comes with a ‘tapering restriction’. The amount of RNRB available is reduced by £1 for every £2 by which the deceased’s net estate exceeds the ‘taper threshold’ of £2 million. In a typical married couple scenario, the second spouse may well need to do some planning once they have received the first spouse’s assets – if they want to benefit from the RNRB in full. Government listening…. Prior to the appointment of Chancellor Rishi Sunak on 13 February 2020, former Chancellor Sajid Javid had made suggestions that he was considering inheritance tax – saying “it’s something on my mind” and there was a “real issue” around inheritance tax. The subject of IHT is likely to become a non-starter given the current crisis so, for those who were grasping at IHT improvements, there is unlikely to be any near time improvements. Financial Planning
The accumulation of capital is a major focus for most. The Estate Planning and distribution and control of distribution is less of a priority to many from what we witness. We can help and support you with your Estate Planning needs so your hard work and prudence is delivered with the respect that your views require. Estate Planning Estate Planning is often complex and emotive. We have substantial experience in supporting and establishing suitable Estate Planning solutions. We know Estate Planning takes time; your time deserves it. Get in touch if you require advice. Warmest Regards. Richard
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