As 2017 fast approaches it is perhaps time to look at the introduction of the new residence nil rate band (RNRB) which, following the provisions of Finance (No.2) Act 2015 will be introduced on a gradual scale from 06 April 2017. As with the transferable nil rate band this must be specifically claimed and can also be transferred to a surviving spouse.
The amount of relief available is referred to as ‘the Residential Enhancement’ and is in addition to the ordinary nil rate band which is currently (and will remain until 2020) £325,000. The RNRB will be introduced as follows:
After 2021 the residential enhancement will be adjusted in line with the Consumer Prices Index (CPI) unless the Treasury sets a different amount before 06 April in the tax year concerned.
This effectively means that as from 2020 the estate of a couple leaving their residence to lineal descendants will have a £1,000,000.00 nil rate band before Inheritance Tax will be applied.
This Residential Enhancement however will not apply to every estate or residence:
· If your estate is in excess of £2,000,000.00 there will be a taper default allowance.
· It only applies to 1 property in your estate (QRI – qualifying residential interest) which must be your residence or had been your residence (see below downsizing provisions) or in cases where an estate contains more than one dwelling house the personal representatives can elect 1 property to have the QRI but this is likely to be determined on the basis of the CGT main residence relief case law.
· It only applies to estates left to lineal descendants, the definition which is generally understood to cover lineal descendants is children, grandchildren, stepchildren, step-grandchildren, adopted children, foster children and children of whom the deceased was a guardian. This means people (even married couples) who die and leave their estates to other than the aforementioned ‘lineal descendants’ will not benefit from the RNRB, which would also include estates left in Trust even if Discretionary Trusts. There is nothing in legislation however which would prevent an appointment during the relevant two year period to a lineal descendant if an estate had been left to a Discretionary Trust to try and claim the RNRB but for those of you who have created Trusts it might be an appropriate time to review your Wills to see if you have negated this additional nil rate band.
Thankfully the government have introduced downsizing provisions as the new RNRB was not intended to dis-incentivise individuals from downsizing or selling their home so provided the residence is sold on or after 08 July 2015 the RNRB can still be claimed on either, capital which represents the last home or against the smaller property if downsizing applies.
This is only a brief resume of the new legislation so for more information on this and any other issue please contact Mrs Angela Pelleschi or Mrs Emma Beckhurst at Jasper Vincent Solicitors, 9 Manor Court, Barnes Wallis Road, Segensworth, Fareham PO15 5TH. Telephone 01489 885788 or email either on apelleschi or ebeckhurst