LEGAL CORNER


Unpicking the new Inheritance Tax rules By Marinella Hollies, partner


My plans to do a follow up on my last article in By the Dart have had to be put to one side following the recent Budget as the Chancellor


came through with the manifesto promise that had originally been made before the Coalition came to power; namely to increase the Inheritance tax allowance to £1 million pounds. but is this increase in the amount that you can leave


before Inheritance tax bites, known as the nil band rate, as generous as it seems? the possibility of having a £1 million Inheritance tax


allowance would apply only if you are a married couple or in a civil partnership. Otherwise, as an individual your allowance would be £500,000 and that will only apply after 2020/21. the current Inheritance tax nil rate band is £325,000. the


increases will not begin until 6th April 2017 so anybody who dies between now and then will not get the benefit of the increased allowance. On that date the nil rate band will go up by £100,000 and will then increase in £25,000 increments annually until it reaches £500,000 in 2020/21. Importantly, the increased allowance will only be


available “when a residence is passed on death to a direct descendant”. the definition of residence seems to be residential property which has been the residence of the person that has died at some point. HmrC confirm that a direct descendant will be a child (including a step child,


adopted child or foster child) of the deceased and their lineal descendants. the additional nil rate band will also be available if a person downsizes or ceases to own a home on or after 8th July 2015 and, importantly, assets of an equivalent value up to the value of the additional nil rate band are passed on death to direct descendants. In introducing the increased allowance the government has made certain that it does not lose as much revenue as might be the case by providing that the increased allowance will only be available where the estate is worth less than £2 million and, in that situation, the additional nil rate band will be tapered away by £1 for every £2 that the net value exceeds that amount. the new allowance is a welcome relief for many, as once in


effect it will mean that a married couple or a couple with a civil partnership with a house valued between £650,000 to £1 million could be able to pass that house on to the next generation without an Inheritance tax charge. For those with higher value properties, that relief will taper away to nothing after £2.7 million. the way in which the changes are phased in over a five


year period means that careful thought needs to be given to drafting of Wills and tax planning. We can advise you at an early stage and will be able to discuss with you the issues that need to be considered to try to ensure that the increase in allowance can be maximised for your family.


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