Tags: Tax, Wills And Probate, Wills
Last year alone the Inland Revenue collected £4,643,000,000 in Inheritance Tax. If you would like to reduce the contribution you make to that sum, it’s important to plan ahead and to think about Inheritance Tax when you make your will, and to review your plans when the government makes changes to the rules.
The tax is payable by estates worth over £325,000, although married couples can effectively ‘pool’ their allowance, so that if the full allowance is not used up when the first spouse dies (as is often the case, where a house passes directly to the survivor) it can be used when the second spouse dies, giving a married couple a total allowance of £650,000 between them. The value which can be passed on without tax being paid is known as the Nil Rate Band (NRB)
From April 2017, the inheritance tax allowance will be increased to include an additional allowance called a Residence Nil Rate Band (RNRB). This allowance is meant to allow a family home to be passed on tax free.
The allowance applies to couples where their combined estates are worth between £650,000 and £2,000,000. Those whose estate value falls below £650,000 need not worry, as they are within the existing allowances and are not liable for any IHT, and couples whose estates are worth more than £2,000,000 will not be eligible for the additional allowance.
However, those whose estates fall between those values need to be aware of the new rules and to make sure that their wills are written to ensure that they are able to claim the allowance.
The new Residence Nil Rate Band will allow up to £175,000 of estate to pass tax free from each spouse’s estate, over and above the normal NRB, making a total tax free estate (including the Nil Rate Band ) of £500,000 for a single person, or £1,000,000 for a married couple. This could save up to £400,000 in tax.
The new rules don’t apply to all assets, and do depend on who money or property is left to, so it would be easy to miss out on the new extra allowance if you don’t get proper advice about your will.
If you think that you may be eligible for the new Residence Nil Rate Band, or if you want advice about making, or updating your will, or planning ahead to minimise your tax liability, contact us as soon as possible.
Even if you already have a will, it’s important to get this reviewed, as many traditionally worded wills are unlikely to qualify for the new allowance, and proper advice and care will need to be taken in drafting a new will for you.
In addition, once you have made a new will which takes into account the new allowance, it will be important to ensure that records will need to be kept if you later have to move into care or downsize your property, to ensure the allowance is preserved in full. Our expert advisors can explain what is needed, and why, to ensure that you fully understand what needs to be done.
Getting this right could save up to £140,000 in tax, for a couple, so is well worth checking!
To arrange an appointment, please contact the Private Client Team at any of our offices.
