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New inheritance tax allowance for homes: six things you didn’t know

New inheritance tax allowance for homes

New inheritance tax allowance for homes: six things you didn’t know

The new Residential Nil Rate Band (RNRB) which was introduced in April 2017 means that over the next 3 years, couples with a home worth up to £1million will be able to pass it on to their direct descendants IHT free. However, a recent survey found that 70% of people had no idea about the new inheritance tax allowance for homes.

At the moment, the first £325,000 of a person’s estate is free of IHT which is known as the nil rate band (NRB), the introduction of the RNRB means you get an extra chunk free of IHT if you own a home. For estates worth over £2million, the new RNRB will be progressively tapered away by £1 for every £2 that the total estate exceeds the taper threshold.

There have been lots of misunderstandings about the new RNRB which could lead people to structure their finances in the wrong way, which is where an experienced financial adviser would be recommended.

The five areas with the highest misunderstanding are:

  1. You can select which property the allowance is set against

The new RNRB can be used against any property within or outside of the UK which was used as your own home and lived in by you. However, the value of the property must be included within the person’s estate for IHT reasons.

  1. The allowance can still apply even if the property has already been sold

This means that if you have downsized you will not be penalised because the allowance can then be used within your estate against the value which the property was sold for.

  1. Any outstanding mortgage is deducted before the allowance is added

The value of the home is calculated by subtracting the liabilities secured on the home from the market value of the property, all for RNRB reasons.

  1. The allowance can only be used when the property is left to direct descendants

The home/value of the home must be inherited by your child or grandchild for the RNRB to be eligible; this does not include siblings, any other members of the family, other people or trusts.

  1. This allowance will rise by £25,000 every year for the next 4 years

The current RNRB is at £100,000 and by 2020/2021 the RNRB will have reached £175,000 per person.

  1. The allowance of a previously deceased spouse is available on the second death of the surviving spouse irrelevant of when the first spouse died

This is only available provided all of the previous five points are adhered to.

Given these confusions and misunderstandings of  the new inheritance tax allowance for homes , it is more important than ever to seek expert financial advice. Do not hesitate to call us, we would be more than happy to help you reduce your IHT bill as much as possible by taking advantage of the new RNRB correctly.


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