Residential IHT Nil-Rate Band Increases

26 Mar 2017

Changes could lead to a saving of up to £140,000.

When the government increased the nil-rate band in 2009 to £325,000, it forecast that it would remain the same until 5 April 2021. But in the summer Budget 2015, the government announced it would phase in a new residence nil-rate band (RNRB) from 6 April 2017. This affects inheritance tax (IHT) when a residence is passed on death to a direct descendant, ie children or grandchildren.

The available amount of RNRB will increase yearly as below, taking it when combined with the nil-rate band to £1m for a married couple in 2020/21:

For deaths in the following tax years it will be:

  • £100,000 in 2017/18
  • £125,000 in 2018/19
  • £150,000 in 2019/20
  • £175,000 in 2020/21

The RNRB will be gradually withdrawn or tapered away where the estate value is more than £2m. After 2021, the increase will be in line with the Consumer Price Index.

Once the set criteria are met, there could be a saving of up to £140,000 in IHT. Therefore, as part of IHT planning, clients may want to consider reducing the value of estates, for instance by means of lifetime gifts (taking care not to trigger the IHT lifetime charge at 20%, or reserve a benefit in such gifts), to bring them within the relevant parameters.

(Article by ACCA in Practice)

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