Inheritance Tax Relief: Where there’s a Will, there’s a way!

On or after 6 April 2017, the government are proposing to introduce significant changes to the current Inheritance Tax rules. On death, the tax payable on your estate will be substantially reduced. However, the changes will not apply to the tax that becomes payable on death on transfers you make in your lifetime.

Current Position
The current ‘nil rate band’ (the threshold within which an estate will not be subject to inheritance tax) stands at £325,000 per person. In short, any assets or transfers made which take the value of the estate over this limit attracts tax at a rate of 40%.

Provided the surviving spouse dies after 9th October 2007, the executors of the survivors estate can apply to transfer any unused portion of the nil rate band from the estate of the first to die, bringing your total possible ‘tax free’ limit to £650,000.

Changes to the Current Position
The changes will bring into being an ‘additional’ nil rate band, which will apply only where your primary residence is passed on death, usually via your will, to a direct descendant. A direct descendant for this purpose is classed as referring to your children and grandchildren.

The band will start, in April 2017, at £100,000 and will increase yearly by £25,000 until 2020. After this point, it will rise in accordance with the Consumer Price Index.

What will this mean in practice?
Therefore, the overall threshold will have been increased dramatically. From April 2017, a person can potentially pass an estate of £425,000 to their descendant’s without paying any inheritance tax whatsoever, provided their property is part of this. The transfer of a spouses nil rate band will still be available, meaning a possible £850,000 estate can move free of inheritance tax.

By 2020, this will mean that each spouse has a possible threshold of £500,000 and a combined spousal allowance of up to £1Million. However, restrictions will be placed on estates valued at over £2Million, where the allowance will be withdrawn at a rate of £1 for every £2 over this limit. When an estate reaches a value of over £2.5Million, they lose all of the new allowance.

How can I benefit from this?
The best way to take advantage of the upcoming changes is to ensure that you seek professional advice, in respect of any tax implications your loved ones may face on your death.

The friendly and experienced team at McCarthy Bennett Holland Solicitors are readily available to advise you and to ensure that your will is drafted with the new laws in mind. If you do require specialist assistance in respect of tax and estate planning or wills and probate, please feel free to contact the team directly on 01942 206060 or alternatively email us at mbh@wigansolicitors.com.