Guidance on the new residence nil rate band

Sally Johnson, solicitor in the Wills Trusts & Estates Department at Lees Solicitors discusses the new Residence Nil Rate Band which is due to be introduced in April 2017.

From meeting with clients there appears to be a lot of confusion regarding Inheritance Tax allowances and rates since the introduction of the new Residence Nil Rate Band was announced. The most common misconception appears to be that the individual Inheritance Tax allowance of £325,000 is being increased to £500,000, which is not necessarily correct. Individuals also appear to be concerned that they may lose the ability to claim the additional allowance is they need full time care in the future.

Sally has addressed 5 of the main concerns raised by clients.

Sally Johnson discusses make a will month

Sally Johnson at Lees Solicitors

  1. Will my individual Inheritance Tax allowance increase from April 2017?

No. The individual Inheritance Tax allowance of £325,000 is frozen until 2021. The new Residence Nil Rate Band is an allowance which can be claimed in addition to the individual Inheritance Tax allowance.

  1. Is everyone entitled to claim the new allowance?

No, not everyone will benefit from the new allowance. The Residence Nil Rate Band is only available where the main residence is passed to direct descendants which includes children; adopted children; step-child; grandchild or other lineal descendants. The list also includes the spouses of civil partners of a lineal descendant, including their widow, widower or surviving civil partner.

  1. How much will the new allowance be?

The Residence Nil Rate Band will be phased in over 4 years from April 2017. Initially the maximum allowance will be £100,000 increasing by £25,000 each year until 2020. At this point the maximum allowance will be £175,000. This will provide married couples and civil partners with the promised £1m Inheritance Tax allowance as the allowance is transferrable between married couples and civil partners.

It is important to note that the Residence Nil Rate Band does not mean your home is exempt for inheritance tax purposes.  The amount of the Residence Nil Rate Band an estate can claim will be the lower of;

(a)       the value of your home, or share inherited by direct descendants; or

(b)       the maximum Residence Nil Rate Band available. This will apply where the value exceeds the maximum allowance available.

  1. Can you lose the right to claim the allowance?

There are situations where the right to claim the Residence Nil Rate Band may be lost, for example, where a property has been placed in a Discretionary Trust as the property in these instances are not regarded as forming part of a person’s estate.

Also, individuals whose estates are greater than £2m may also lose the right to claim the Residence Nil Rate Band as there will be a tapered withdrawal of the allowance at a rate of £1 for every £2 over this threshold. Tapering can also reduce the amount which can be transferred to a surviving spouse or civil partner.

  1. What if I downsize or have sold my house due to being in full time care?

The family home does not need to be owned by you at your death to qualify as there is also the ability to claim an additional allowance, known as a ‘Downsizing Addition’. The Downsizing Addition can be claimed provided the home you disposed of was owned by you on or after 8 July 2015 and it would have qualified for the Residence Nil Rate Band had you retained it.

The amount which could be claimed under the Downsizing Addition will generally be equal to the Residence Nil Rate Band that has been lost due to the family home no longer being in the estate.

Due to the complexities involved in claiming the Residence Nil Rate Band and ensuring the ability to claim the additional allowance is lost Sally Johnson comments,

It is extremely important to keep Wills under review to cater for changing circumstances and to ensure changes in legislation do not adversely impact on your estate. Years ago it was common for individuals who were concerned about Inheritance Tax to incorporate Discretionary Trusts in their Wills. However, those individuals now run the risk of their estates losing the ability to claim the new Residence Nil Rate Band unless they take action now.

How we can help

Let Lees Solicitors make things a little easier for you and your family.  Contact our Wills, Trusts & Estates team to book an appointment or to chat through your requirements on 0800 387 927.

Lees Solicitors offer free safe storage of any will and can register your will on Certainty’s national wills database.

0 comments

make an enquiry

If you have an enquiry about our legal services, please fill in the form below and one of our team will contact you shortly…

Name
Email
Telephone
Service
How can we help you?

Whilst we will try our very best to assist you with your enquiry, we cannot provide answers to legal questions without being legally instructed to act for you.

Terms & Conditions >

  • mission statement
  • values

mission
statement

We are committed to delivering excellent levels of customer service, representing all our clients with expertise, passion and care. We inspire our teams to combine outstanding experience with warmth and understanding and to make it a pleasure to do business with us.

read more

We strive to create a happy, positive environment which fosters trust and loyalty and reflects the traditions of the business whilst inspiring innovation. In everything we do, we aim to make a positive difference to the lives of our clients, business partners, employees and community.

Welcome _mat

values

We are committed to delivering excellent levels of customer service, representing all our clients with expertise, passion and care. We inspire our teams to combine outstanding experience with warmth and understanding and to make it a pleasure to do business with us.

You are never just a case to us. We know that life and circumstances can be complicated and difficult and we are sympathetic, understanding and re-assuring. We pride ourselves on developing close personal relationships with our clients, many of which span years and lifetimes, moving from father to son, mother to grand-daughter.

read more

  • "Thanks again for all your help with getting my daughter back. Thank you for a excellent service. Thanks to Kerry and Sarah."

    Family: Mike Guy
  • "At possibly the most distressing time of my life, Jenniffer Skillen and the staff at Lees Solicitors were there to support me through what was a difficult and complicated divorce. The expertise, professionalism and compassion I was awarded I feel would be difficult to equal. I don't feel that there will ever be words to describe the thanks and gratitude I have. Jennifer and Lees have provided me with a bright future, which is financially secure and bright. They have given me back my life. Thank you"

    Family Client
  • "Many thanks for all of your help and patience in dealing with the sale. I really do appreciate the attention you gave to all matters and the regular updates. You have been very kind and I am grateful"

    Residential Property Client
  • "I brought Helen along for her initial introductory appointment, she immediately felt comfortable with you (Sarah Fox). The understanding and empathy displayed by you at her initial meeting suggested to her that you were going to look after her and her eight year old daughters best interests. You gave good and free advice on how to handle all aspects of her case and how to manage any situations that may arise. There was no choice to be made, you were the legal eagle that Helen wanted in her corner. Once Helen had given the go ahead you swept into action, keeping Helen informed of each step of the way"

    Family Client
  • "The staff at Birkenhead have always acted impeccably and I can’t thank them all enough, in what has been a very traumatic and stressful time for me and my family - but onwards and upwards"

    Family Client
  • "Dominic did the conveyancing on the sale of my late father’s property and provided expert and efficient service. He made the whole process stress free for me, with regular updates and clear communication. There was an old charge on the property and, although it initially appeared problematic, Dominic managed to get this resolved, pursuing the issue with the third party and Land Registry until it was successfully removed. He answered any questions that I had, always responding promptly and reassured me that I could contact him at any time. I will most definitely ask Dom to do any future conveyancing and will recommend to others"

    Conveyancing Client: S. Evans
  • "Very pleased with Ms Skillens support throughout a very difficult time. Very approachable and I felt I was able to ask questions and get a timely response. Thank you"

    Family Client
  • "We would highly recommend Mr Dominic Byrne for his professional and friendly advice and guidance."

    Conveyancing Client
  • "Lees made what I thought was going to be a really scary process easy to understand and very straight forward.  Thank you for everything"

    Family Client
  • "Very efficient service"

    Residential Property Client