Every individual person can pass £325,000.00 (known as the ‘nil rate band’) in the 7 years up to and including their death and such amount will not be liable to inheritance tax. Any amount over £325,000.00 will be taxed at 40% for example on an estate worth £425,000.00 with no gifts in the 7 years prior to death the inheritance tax bill would be £40,000.00 i.e £425,000.00 – £325,000.00 = £100,000.00 @40% = £40,000.00.
In addition where a spouse or civil partner died after 9th of October 2007, irrespective of the date when the first spouse/civil partner died it is possible to transfer any part of the ‘nil rate band’ of this person which has not been used. For example if the first spouse/civil partner died and the second party then died leaving total estate of £450,000.00 the nil rate band would be £325,000.00 x 2 = £650,000.00 so no inheritance tax to pay.
Legislation is proposed to be introduced by the Finance Bill 2016 will provide an additional ‘nil rate band#’allowance on top of the existing limits of £325,000.00 for any estate where the deceased’s estate includes property, which had at some point been their residence and is left to one or more direct descendant’s.
The value of the main residence nil-rate band for an estate will be the lower of the net value of the interest in the residential property (after deducting any liabilities such a mortgage) or the maximum amount of the band. The maximum amount will be phased in so that it is:
• £100,000 for 2017 to 2018
• £125,000 for 2018 to 2019
• £150,000 for 2019 to 2020
• £175,000 for 2020 to 2021
Buy to let property will not qualify. If a person owns more than one property and has used the same as their residence then a specific property can be specified as the property to which the relief should be applied.
The relief will be withdrawn IF the estate exceeds the threshold of 2 million- the aim being to allow ‘hardworking’ families who ‘ought’ to be allowed to pass on thier houses to their descendants free of inheritance tax.
There are complex rules surrounding this area of the law in relation to discretionary trusts and ‘life interests’ and in relation to lifetime transfers, which may remove the availability of the relief.
We can offer specialist legal advice in this area of law. Call today for an appointment with our wills & estate management experts Matthew Winder or Kerry Davies.
We have offices at Lancaster, Kendal and Barrow in Furness
Telephone 01524 39760