The debate continues to rumble on about the complexities surrounding the new £1m Inheritance Tax Nil Rate Band (NRB). To recap, over the next four years a new Residence Nil Rate Band (RNRB) will be introduced up to £175k to be offset against a main residence inherited by direct descendants. But the real question is how far it really bridges the gap for children to inherit the family home tax free?
The new measure is surely good news. With both the current and additional NRB being transferrable between spouses and civil partners, a couple can benefit from a maximum £1m and so joint estates could save of up to £140k in IHT. But with average house prices reaching some £481k in the South East and around £181k in the rest of England and Wales, in many cases, it appears we’re still a long way from being able to pass family homes to the next generation IHT free. With the allowances frozen until 2020-21 the savings will be further eroded as house prices continue to rise.
Should homeowners be seeking planning advice? Absolutely. But they should remember:
- the additional £175k can only be used against a main residence so IHT planning for other assets remains as important as ever;
- the full RNRB will not be available until 2020-21. Do not assume that savings are immediate!;
- review the availability of the RNRB. If an estate exceeded £2m the allowance will be tapered. This is also true when assessing what amount is transferrable from a deceased spouse or civil partner; and
- if you move house to a lower value property, keep evidence of all valuations as we do not yet know how the 'downsizing rules' will apply in practice.
So what about those couples with no children? Not only do they not qualify for the additional allowance, their NRB will now be frozen until 2021 whereas previously this was to be reviewed in 2019. So clearly this measure isn’t good news for everyone…