On 6^th April 2017, a new Inheritance Tax relief was introduced, the Main Residence Nil Rate Band (MRNRB) which may help save Inheritance Tax for families.

When a person dies, their estate is liable to pay Inheritance Tax at 40% on assets over the value of the nil rate band, which is currently £325,000.  This has been frozen until 2020. The estate of the surviving member of a married couple or registered civil partnership can use the unused proportion of the first to die’s Inheritance Tax allowance.  This means that potentially, the survivor’s estate could have the benefit of an Inheritance Tax allowance of £650,000.

The MRNRB provides an additional Inheritance Tax allowance where the family home, or proceeds of sale of the family home if you have downsized after July 2016, pass to close relatives, who for this purpose would include children, grandchildren, step children and step grandchildren.  Other relatives such as brothers, sisters, nieces and nephews do not qualify.

The MRNRB is to be phased in, starting at £100,000 for tax year 2017/18 and is due to rise by £25,000 each year to an additional allowance of £175,000 per person by April 2020. The MRNRB will then increase in line with the Consumer Price Index from 2021 to 2022 onwards.

As with the Inheritance Tax allowance, the unused MRNRB can be transferred to the surviving spouse or civil partner.  Potentially this could mean that the estate of the surviving member of a married couple or registered civil partnership could have Inheritance Tax allowances totaling £1 million.

For a single person, this could potentially mean that their estate had Inheritance Tax allowances of £425,000 available, if they died during this tax year.

Example:

Mr. Smith, a divorced man, dies in August 2017 leaving a house worth £350,000 and savings of £70,000 giving him a total estate of £420,000.  Mr Smith has made a will leaving his entire estate equally between his 2 children.  Mr Smith’s estate has Inheritance Tax allowances available of £425,000 (nil rate band = £325,000 + MRNRB £100,000) which means that there would be no Inheritance Tax to pay.

Is this too good to be true?

Possibly! It is extremely important that you take legal advice in connection with the preparation of your will to ensure that your estate can benefit from the additional MRNRB.  Careful consideration needs to be given to the preparation of your will as the additional allowance is not available to all. If you already have a will, we recommend that you review the terms to ensure that the maximum Inheritance Tax allowances can be claimed when the time comes.

Please contact a member of our Wills & Probate team who will be pleased to answer any questions you may have. Call us today on 01484 538421.

Jill Waddington, Wills & Probate