Inheritance tax allowance increasing to £1,000,000

The Conservative government made a pledge to increase the nil rate band – the amount of property or money you can leave to someone other than your surviving spouse or charity without incurring any inheritance tax liability – to £1,000,000. They are now doing this for married couples and civil partners.

Unfortunately rather than a simple increase to the existing nil rate band of £325,000 a brand new residence nil rate band is being introduced. For deaths on or after 6 April 2017 when a residence is given on death to certain descendants there will be an additional relief from inheritance tax. It is intended that this additional relief will rise to £175,000 by April 2020. This means that for deaths after 6 April 2020 there will be a nil rate band of £325,000 plus an additional residence nil rate band of £175,000 making a total of £500,000. By April 2020 there is the potential for a surviving spouse or surviving civil partner to claim an inheritance tax allowance of £1,000,000 provided their residence is worth at least £350,000.

To qualify for the additional residence nil rate band an estate must (subject to the comments made below about downsizing) include a residence at death. Other assets will not qualify and a buy to let property never used as a residence will not qualify.

The residence must pass to “lineal descendants”. This includes, children, grandchildren, step children, adopted children, foster children and in some instances their spouses. It does not include your brothers and sisters nor does it include your nieces and nephews.

Some provisions have been made for those people who have downsized their property since 8 July 2015. The government recognises that people may wish to downsize to a smaller and often less valuable property in later life. Others may have to sell their home because, for example, they have moved into long term care. All or part of the residence nil rate band might be available to these people even though at the date of their death they owned a less valuable residence or no residence at all.

If you do sell your home after 8 July 2015 it is important that you keep copies of your completion statements and copies of the registered title to assist your executors in claiming the residence nil rate band after your death. Ideally you should keep copies of these documents with a copy of your will.

You may still be able to claim a residence nil rate band from your deceased spouse even if he or she died before the residence nil rate band is introduced in April 2017.

Estates worth more than £2,200,000 will not be able to claim a residence nil rate band and estates worth more than £2,000,000 will only get part of it.

It is important that you review your wills in order to make sure you claim the allowances to which you are entitled

If you would like advices about this or any other matters then please contact Anita Whelan on or Natasha Kenway on or Paul Moores on or telephone 01425 621515