Inheritance tax relief - don't miss out

The Residence Nil Rate Band Allowance (RNRB) is a tax relief for those who may inherit property which can reduce the amount of inheritance tax payable. It came into effect in April 2017.

Suzanne Porter, a director and private client solicitor at Wake Smith Solicitors, looks at whether clients have everything in place within their wills to take advantage of all the inheritance tax reliefs available to them.

“If someone dies (on or after 6 April 2017) and their estate is above the basic Inheritance Tax threshold, the estate may be entitled to an additional relief which can preclude inheritance tax becoming due. The extra amount for April 2017 to April 2018 is up to £100,000.

It is important to ensure your estate is able to claim all of the inheritance tax reliefs it can, otherwise you may be paying your hard earned money to HMRC on your death unnecessarily.

The RNRB of £100,000 is claimable when a residence is passed, on death, to a direct descendant or their lineal descendants.

For the purposes of this additional relief a direct descendent will be a child (including a step child, adopted child or foster child) of the deceased and their lineal descendants.

This RNRB figure is set to increase every April to April tax year until the tax year 2020 to 2021 when it will be set at £175,000. This RNRB is also transferable between spouses as with the current nil rate band.

It is imperative that you ensure your will does not preclude claiming this allowance, so careful consideration needs to be given to ensuring that under your will there is an absolute gift given to a qualifying beneficiary and in particular no age restriction is placed on minors inheriting (as the latter precludes an absolute gift). Now that this allowance is claimable, we are able to answer frequently asked questions.”

Must the residence be in the UK?

“There is no requirement that it may be the deceased's main residence or a UK property - it simply has to have been used as a residence at some point in the deceased’s ownership. A second home here or abroad can qualify.”

Is a step child always a step child or does the relationship cease on divorce?

“A person who is at any time a step child of another person is to be treated at that and all subsequent times as if the person was that other persons child. A step child is a child of a persons spouse or civil partner, a child of a cohabitee is not classed as a step child.”

Is the rule the same for foster children?

“Yes, the person who is at any time fostered by a foster parent is to be treated at that and all subsequent times as if the person was the foster parents child. It is also the same for children who are subject to special guardianship orders.”

What happens if the testator divides their estate between lineal and non-lineal descendants?

“The guidance from HMRC indicates that if 60 per cent of the estate is left to a lineal descendant and 40 per cent is left to others, 60 per cent of the value of any residence is attributed to the lineal descents.

There are many questions and every individual has unique family circumstances. If you are needing the residence nil rate band to be claimed on your estate - to avoid the payment of inheritance tax or to substantially reduce it, you should give careful consideration to obtaining specialist legal advice regarding to the drafting of your will and estate planning.

Finally, it is also worth noting that there is a tapered withdrawal of the additional main RNRB for estates with a net value of more than £2m. This will be a withdrawal rate of £1 for every £2 over this threshold.”

For further information please contact Suzanne Porter on 0114 224 2178 or at suzanne.porter@wake-smith.com

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