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Inheritance Tax Update

Since April 2017, many estates in the UK have benefitted from an additional Inheritance Tax Allowance called the Main Residence Nil Rate Band.


Estates of individuals who have direct descendants and who own (or have owned – with some exceptions) a residence, and who leave it to direct descendants can take advantage of this tax break.


The allowance was introduced gradually and from April 2020 has reached the maximum amount available of £175,000. This means that an individual’s estate can benefit from Inheritance Tax allowances of up £500,000 and married couples or couples in civil partnerships of up to £1million. The new allowance interacts with the standard Nil Rate Band of £325,000 and it is possible to claim a transfer of allowances between spouses. The claim is made on the second death, irrespective of when the first death occurred.


The definition of direct descendants is wider than you may think and whilst it is not possible to give a full list in this article, many estates will qualify and huge tax savings can be made.


The residence does not need to be owned at the time of death, which is helpful if a person or couple have downsized or sold for residential care purposes. Only one residence can qualify, so if a person owns more than one, it will be up to their personal representatives make the nomination. It is important to note that a property which has never been a residence such as a buy to let will not qualify.


Sadly, as with any tax law there are some traps and pitfalls that need to be avoided, for example some Trusts will fall foul of the rules and  careful planning of your estate and affairs is needed in order to retain this valuable additional allowance. It makes sense therefore to keep your Will reviewed regularly and seek help from a professional.


Added: 21 May 2020 09:50

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