We welcome guest writer, Liz Garvey, Partner at law firm Penningtons Manches LLP (pictured below), who gives clarification on the new Residence Nil Rate Band...
The new Inheritance Tax allowance for family homes came into force on 06 April this year.
The provisions for the new Residence Nil Rate Band (RNRB) are complex, but have been put in place to benefit individuals leaving their residence directly to children, and will take effect in addition to the existing nil rate band. From 2020, a married couple could pass on a total of £1 million to their children free of Inheritance Tax. This means a tax saving of £140,000 for the family, so it is well worth planning to make sure that your heirs can successfully claim it.
The new allowance can only be claimed in full where the deceased's estate for Inheritance Tax purposes has a value of £2 million or less. It is only available in part above this figure.
It is really important that existing Wills are reviewed taking into account the complex rules applying to this new allowance to ensure that you have not inadvertently put in place something that would prevent a RNRB claim. The same applies when creating a new Will. Advice should also be taken about lifetime giving to ensure that it does not affect your ability to claim.
You may for example have read in the press that trusts of any kind in a Will would prevent you making a claim, since property passing into a trust is ineligible. This is not strictly true, but great care should be taken to draft the correct type of Will trust and to ensure that other trust arrangements still work.
Even if you decide to downsize or even sell up altogether in order to move into residential care then it is possible for your executors to make a claim for the RNRB, provided careful records have been kept.
This is a real opportunity to mitigate your Inheritance Tax liability – but proper advice should be taken.