The new Inheritance Tax Residence Nil Rate Band (RNRB) will become available from 6th April this year, meaning that an additional tax-free allowance of up to £175,000 per person may apply if the family home passes to certain relatives including children, grandchildren and step-children on death. Some, although not all, gifts into trusts may also qualify.
Although the headline figure of a married couple or civil partners being entitled to combined nil rate bands and RNRBs totalling £1 million by 2020 sounds straightforward, in fact this maximum amount will only be available if certain conditions are met, and so it is recommended that will and estate planning is reviewed with a view to securing the maximum benefit from the RNRB.
I have a discretionary trust in my will – do I need to change it?
If you have a discretionary trust in your will this does not have to be changed. In many circumstances a discretionary trust offers the most flexible planning with the ability to use the RNRB taking into account all the circumstances at the time.
The important point to note is that the trustees must use their discretionary powers within two years of the date of death to make the best use of the RNRB. For married couples and civil partners this includes deciding whether to use it on the first death or pass it to the survivor to use on the second death.
I have been widowed – should I review my will?
If you have been widowed then it is important to review your will to ensure that your estate will qualify for the RNRB. For example, if you are the beneficiary of a life interest trust you may wish to check that your children will benefit on your death so as to qualify for the allowance.
As mentioned above, ideally action should be taken within two years of your spouse or civil partner passing away. As spouses and civil partners can transfer any unused RNRB to the survivor (in a similar way to the nil rate band), keeping good records from the time of the first death will be important.
Should I still leave assets to children in trust?
Often we want to leave assets to younger children in trust for them until they reach a certain age, for example 21 or 25. However, holding the assets on trust until they reach such an age means that the RNRB will not apply automatically as the children do not inherit outright at 18. Nevertheless, the trustees of a child’s trust may be able to use their discretionary powers to give the child the right to inherit at 18 and so claim the RNRB, if they feel this is appropriate.
My estate is worth more than £2 million – will I qualify?
As there is a tapered withdrawal of the RNRB for estates exceeding £2 million, couples whose estates are approaching this figure may wish to consider equalising the assets in their estates. Those whose estates exceed £2 million could consider making lifetime gifts, if appropriate, to bring their estates below the threshold.
I have sold my property – can I still claim the RNRB?
If a person has downsized, selling a property and replacing it with a less valuable one before their death, or sold their property without buying a replacement, then it may still be possible to claim the RNRB based on the previously-owned property. However, it is essential to keep good records each time a residence is sold and a new one bought in its place.
If you would like us to review your will in light of the RNRB changes or in general please feel free to contact one of our team.