27th Nov 2015

So, can I now leave my house to my children free of inheritance tax?

The Conservatives have been promising for some time that they are going to make changes to the law to allow married couples to pass their house down to their children on their deaths, without the need for the property to be sold to pay inheritance tax.

Following the election this year they have now outlined their plans for how this is going to come about. But, unsurprisingly, it is not going to be quite as straightforward as first thought!

Instead of increasing the nil rate band, which is the amount of money (or the value of assets) you can leave to beneficiaries without inheritance tax becoming due, the proposal is that a new additional residence nil rate band (“RNRB”) will be available when a residence is passed to a direct descendant.

A direct descendant is a child (including a step-child, adopted child or foster child) of the deceased and their lineal descendants.

The ‘RNRB’ will be:

  • £100,000 in 2017 to 2018;
  • £125,000 in 2018 to 2019;
  • £150,000 in 2019 to 2020; and
  • £175,000 in 2020 to 2021.

It will then increase in line with the Consumer Prices Index (CPI) from 2021 to 2022 onwards. This will be in addition to your existing nil rate band which is currently £325,000.

So, in theory, from 2020 a married couple can pass a house worth £1 million to their children without any inheritance tax being due.

However, if an estate has a net value of over £2 million, this RNRB will be reduced at a rate of £1 for every £2 over the threshold.

At the moment, these are only proposals and we are awaiting further details. In particular, there is uncertainty about whether those people with trusts in their wills will have to change them in order to take advantage of the additional RNRB.

Another area of concern is what will happen where people have downsized, or sold their property to fund care fees. Will they still be entitled to claim the RNRB? How will this work in practice?

Many people will be waiting with interest to see how it will all work.

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