Bluebond Estate Planning
Bluebond Inheritance Tax Planning
Bluebond Property Tax Planning

Complex rules on inheritance tax


Complex rules on inheritance tax

If you own your own home and your estate is worth less than £2 million, then after your death, your beneficiaries will benefit from the new inheritance tax exemptions which were introduced in April 2017. The new residential nil rate band (RNRB) offers £100,000 worth of inheritance tax exemptions per person to your children or grandchildren. The £100,000 will increase by £25,000 each year until the total reaches £175,000 in 2020/21.

The new RNRB added to the nil rate band of £325,000 means that there is a total of £1 million worth of exemptions of inheritance tax for a couples descendants. However, the new exemptions have drawn criticism as it favours the traditional family as those who are not married or in a civil partnership will miss out on the transferable element.

For every £2 over £2 million that your estate is worth, the RNRB is reduced by £1. This means that if your estate is worth exactly £2.2 million in the tax year 2017/18, then the RNRB is reduced to nil. In the tax year 2020/21, if your estate is worth £2.35million then you will not qualify for the benefit of the RNRB.

If you are looking to benefit from the RNRB then it is advised that you give pension planning higher priority over any other investment assets if you want to stay in the £2million limit. This is because a pension is not necessarily subject to inheritance tax. It the works in favour if you leave more money in your pension as it could keep you within the £2million bracket. However, as you are aware the rules around pension planning and death benefits are also complicated once a person is over 75 years old. As always, you are better off getting experienced advice.

If you are interested in financial planning and reduce inheritance tax for your children please call us today.

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