Residence Nil Rate Band

Following the pledge to introduce a Residence Nil Rate Band by the Chancellor in the Summer Budget 2015, the proposed provisions were enacted by the Finance (No 2) Act 2015, and will come into operation next year.

All individuals currently have a Nil Rate Band of £325.000.00 and this it set to remain at this level for the foreseeable future.  The Act introduced an additional Nil Rate Band in respect of residential property which is being left on death to lineal descendants (‘the Residence Nil Rate Band’).

The additional Residence Nil Rate Band will be available on deaths after 6th April 2017, and will be introduced in increments as follows:-

• £100,000 in 2017 to 2018
• £125,000 in 2018 to 2019
• £150,000 in 2019 to 2020
• £175,000 in 2020 to 2021

The Residence Nil Rate Band will then increase in line with Consumer Prices Index (CPI) from 2021 to 2022 onwards. Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner.

The Residence Nil Rate Band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the Residence Nil Rate Band, are passed on death to lineal descendants.

There will be a tapered withdrawal of the Residence Nil Rate Band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

The main points to consider are as follows

• The relief applies to residential property which is included in a person’s estate on death and which is passed to children and descendants (including step children) and /or their spouses/civil partners.

• The property must pass into the estate of the descendant or onto a favoured trust for their benefit i.e. to them outright or onto an Immediate Post Death Interest, Bereaved Minor, 18-25 or Disabled Persons trust.

• The residential property must have been occupied by the person as a residence at some time during their ownership but does not need to have been their main residence. If a person owns more than one property it is possible to choose which property obtains the relief via an election.

• For deaths prior to 6 April 2017 the surviving spouse will be able to claim the deceased persons Residence Nil Rate Band (as it would have been impossible for them to use it). The deceased does not need to have owned a property.

The introduction of the Act could mean that married couples leaving property to their children could effectively have a combined Nil Rate Band of £1,000,000.00.  That is to say that they can give away up to this sum on both of their deaths without being liable for any Inheritance Tax whatsoever.

For more advice on the Residence Nil Rate Band and how it will affect your Will and Tax Planning please contact our Private Client Department on 01743 285888 or michelles@terry-jones.co.uk


 

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