On 6 April 2020, the residence nil rate band increased to £175,000 which, when combined with the nil rate band of £325,000, means that married couples and civil partners who own residential property, are now able to gift up to £1 million to their direct descendants with no inheritance tax payable on their estate.
However, as is often the case, there are restrictions which include:
- The residence must pass on death to a direct descendant (ie children or grandchildren).
- The relief is only available for a dwelling house which has been the person’s residence whilst it was part of the person’s estate.
- There is tapered withdrawal of the residence nil rate band for estates with a net value of more than £2 million (after deducting any liabilities but before reliefs and exemptions). The residence nil rate band is to be reduced by £1 for every £2 that the amount exceeds the £2 million threshold.
Although the increase in the residence nil rate band is welcomed to reflect the increase in residential property prices, the mechanism by which it is offered is still unfortunately complex. Some couples may still need to consider lifetime gifts to reduce estates below the £2m threshold and testators should also consider who the beneficiaries are in their Will – if their direct lineal descendants do not inherit, testators could be missing out of these important inheritance tax benefits.
For issues relating to Wills, Inheritance Tax and Estate Planning please contact Shirah Blackwood TEP on E: shirah@thpsolicitors.co.uk T: 0118 975 6622