Changes to Inheritance Tax – The previously announced addition to the existing inheritance tax rules, the introduction of the ‘main residence nil-rate band’ for the estates of those who die after 6 April 2017, will cause many to consider that they no longer need to plan for Inheritance Tax.
The changes are now law as the Finance Act (No.2) has Royal Assent, and provide for a supplemental allowance that applies specifically to a property within a person’s estate, which was that person’s home at some point. It will be phased in from April 2017, starting at £100,000 per person. It will then increase by £25,000 every April until 2020, when the maximum of £175,000 will be reached.
There are a number of important points about the main residence nil-rate band, also referred to as “residence allowance”:
- It will only apply to people with direct descendants (children or grandchildren) they plan to leave their home to.
- Anyone without a property worth at least £175,000 per person, or £350,000 per couple, will only partially benefit, or – if no property is owned – will not benefit at all.
- Anyone who disposed of their property before 8 July 2015 – for example, because they are in residential care or living with their children – will not benefit from the new allowance at all. Provision is being made for disposals after 8 July to be protected in some circumstances.
- Estates worth more than £2 million will find their entitlement to the residential nil-rate band scaled back.
It is essential for anyone concerned about Inheritance Tax seek out advice on estate planning as the new changes plus the clever application of trusts could prove beneficial.
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