We always recommend that you review your Will every 3-6 years to ensure that it does exactly what you want it to do, especially with the changing of laws surrounding Wills and Probate. On 6th April 2017, the Residence Nil Rate Band (RNRB) came into effect. It is important that you understand what this means for your estate as it may mean that you wish to review your Will to take full advantage of the new rules.
What is the Residence Nil Rate Band?
Currently, as many of you are aware, inheritance tax (IHT) is currently charged at a rate of 40% based on the value of your assets at the date of your death. The charge of IHT is only on assets exceeding the current nil rate band, that is £325,000 for an individual. The introduction of the RNRB means that if an individual is over their IHT allowance, there may be less IHT to pay at 40%, if the family home is left to direct descendants, i.e. children, grandchildren or other lineal descendants such as step-children.
How much is the Residence Nil Rate Band?
The Government announced in April 2017 that the RNRB for the tax year 2017-2018 is £100,000. What this essentially means is that if you leave your residence to a direct descendant in your Will you will still have your current nil rate band which is £325,000 for an individual plus an additional £100,000 tax free allowance on top of the nil rate band which essentially means that you have £425,000 which will not be subject to IHT.
Moreover, if you are married or in a civil partnership, you still get the advantage of the transferable nil rate band and the RNRB also has the ability of being carried forward, which essentially means that on second death there could be up to £850,000 tax free estate.
According to the government announcement the RNRB, currently at £100,000, is due to increase to up to £175,000 in 2021 which ultimately could provide a combined nil rate band (i.e. if you are married or civil partners) of as much as £1 million, provided the criteria is met.
What should you do now?
To ensure that you maximise the tax-saving effect of the RNRB, I recommend that you review your Will or if you do not have a Will in place at the moment, make a Will. There are various rules surrounding the new RNRB and the terms of your Will can affect your ability to claim the same.
If you would like some more information in respect of preparing a Will or if Franklins have prepared a Will for you in the past and you wish to review the same, please get in touch on 01908 660966 or email me on firstname.lastname@example.org.