For deaths after the 6th April 2017 an additional Inheritance Tax free allowance will come into force, meaning that if certain criteria are met, it is now possible for an individual to pass on assets worth up to £425,000 Inheritance Tax free, with married couples and civil partnerships able to leave a combined £850,000.
This will also increase over the next three years and after the 6th April 2020 the planned allowance increases will mean that married couples can leave £1 million worth of assets Inheritance Tax free. Previously, the Inheritance Tax free allowances were a maximum of £325,000 for an individual and £650,000 for a married couple.
The additional allowance known as the ‘Residence Nil Rate Band’ will allow an additional £100,000 of Inheritance Tax exemption to be applied to an estate where a person’s residence is passed on to direct descendants, but is not straightforward.
Unfortunately, the rules regarding what qualifies as a residence and who counts as a direct descendant are intricate. In addition, there are a number of other conditions that must be adhered to for the allowance to apply including complex provisions for those who downsize and did own a residence that would have qualified, but do not own either a residence or a residence worth the value of the exemption at the time of their death. The allowance is also transferrable between spouses, so that a surviving spouse can use both allowances, if the first allowance was unused.
Richard Neea, Head of Wills, Tax and Probate said;
“The increased Inheritance Tax allowance is welcome and will help people pass on more of their hard earned wealth to loved ones. The previous allowances have been unchanged for a number of years and it is good that increases to the amount a person can leave Inheritance Tax free have been introduced.
“However, the legislation and criteria applied is complex and does change the landscape of Will writing dramatically for those who have an Inheritance Tax problem. Due to the numerous criteria that must be met to attain the additional allowances, it would be advisable to seek expert professional advice is sought by those making a Will or reviewing their financial affairs. This is so they can ensure that any Will they already have or decide to make is the most Inheritance Tax efficient that it can be.