Posted: Friday, 4 January 2019 @ 13:43
The new residence nil rate band(RNRB) derive from the 2007
Conservative Party Conference where George Osborne announced plans to increase
IHT tax free component to £1m.
At last, we are heading towards an Act of Parliament and
now, we are looking at RNRB moving in at £100k in 2017/18 and rising to £175
ultimately in 2020/21.
Just some facts:
1. Only a few
people will inherit the holy grail of £1 million. There are lots of loops to
2. This tax
reduction is being funded by freezing the nil rate band of £325k which has been
frozen since April 2009. The nil rate band will remain frozen until the end of
2020/21. It is not that great from an IHT perspective and partly a case of
Peter robbing to pay Paul.
3. If you give
property directly, great but overall gifts of property is limited. Few property
settlements qualify. E.g Discretionary settlements do not qualify even if all beneficiaries are of
lineal descendants. A typical grandparental will settlement such as “for such
as my grandchildren as reach 21” will not qualify because it is a relevant
4. The RNRB is
limited to one property but if an estate includes more than one property the
executor can choose the property. A property that was never a residence but
used as a buy to let will not qualify though can be qualify if used as a
residence at one point. Some confusion, here.
5. It can encourage
bizarre behaviour. The tax benefit is
withdrawn by £1 for every £2 for the value of the estate which exceeds the
threshold of £2m. This can encourage
people to make deathbed gifts to reduce the value of the estate. Spouses/civil
partners may choose to prevent total estates reaching £2m.
6. The meaning of closely inherited is wide. The
residential interest can pass to a descendant including step-children and
foster children. Spouses/civil partners of deceased decendants qualify provided
they do not remarry.
7 It will encourages legal involvement particularly after
death as people try to do deeds of variation to benefit from the tax. Overall
this is good for specialist lawyers though they do have to master the
legislation. The focus will involve tax planning post death.