What is inheritance tax?
When someone dies, inheritance tax is paid on their estate, which is calculated as their assets less any outstanding debts.
The estate will owe tax at 40% on anything above the £325,000 inheritance tax threshold (known as the ‘nil rate band’).
Nil rate band
The nil rate band for inheritance tax is £325,000.
There is no inheritance tax on assets left to a spouse, and as such a couple can have a combined nil rate band of £650,000.
The existing nil-rate band will remain at £325,000 at least until April 2021.
What’s new?
The Residence Nil Rate Band (RNRB) is an additional allowance for inheritance tax which came into force for deaths which occur after 6 April 2017, when passing on one’s main residence to one’s children or grandchildren.
Like the nil rate band, the RNRB can be transferred between spouses if it is not used in whole or part when the first spouse died, even if the first death occurred before 6 April 2017.
Please note that the increased band is only available if the value of the whole estate is less than £2m.
If the estate is worth more than £2m, individuals start to lose the tax relief at a rate of £1 for every £2 over the limit.
How much is the RNRB?
The increases are as follows for individual deaths (couples will have double these amounts) after:
- 6 April 2017 – £100,000
- 6 April 2018 – £125,000
- 6 April 2019 – £150,000
- 6 April 2020 – £175,000
It will then increase in line with Consumer Prices Index from 2021 onwards.
Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner.
This means that from April next year for a couple passing on their main residence to children or grandchildren, a house up to £1m can be passed free of inheritance tax (pre-April 2017, this would have been £650,000).
Farley Kaye FCA
Managing Partner
For more information please contact Farley:
farley.kaye@fkgb.co.uk
052 627 7472
