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Wills and Probate - The New Residence Nil Rate Band

There have been some recent changes in legislation concerning Inheritance Tax and it is important that you review your circumstances in light of these changes.  You may recall that in 2007 the Conservative party included in their manifesto the proposal to increase the Inheritance Tax nil rate band threshold to £1million for couples.  Well, they have done this but as with any change in policy, the outcome of the change is not as simple as it sounds and it will require a little bit of effort to ensure you are taking full advantage of the new relief.

You will currently have a nil rate band of £325,000 (unless you have made significant lifetime gifts) and with the change in legislation, which is being phased in over the next 3 years, you will have an additional residence nil rate band of £175,000 making a total of £500,000.  If not used on first death, this relief can be transferred between married couples and civil partners, therefore reaching the magic £1million worth of relief.

However, the relief attaches to your property and this property must be inherited by a direct descendent, ie children, grandchildren or remoter issue.  If the property is inherited by other family members then the relief is not available.  Similarly, if your property passes to a Discretionary Trust then the relief is not available.   A life interest trust will attract the relief if the ultimate beneficiary is a direct descendent.  Any gifts that are left to direct descendants that are contingent on the recipient attaining a certain age, ie to grandchildren at age 21, will fall foul of the relief.

The value of your estate also plays a part in establishing whether or not the relief is available.  Should the size of your estate exceed £2million then the relief is reduced by £1 for every £2 that the estate is greater than £2million.  How the size of your estate is calculated for this purpose is important and some discussion is needed so that you are aware of how this affects your circumstances. 

Should you or maybe a parent, consider downsizing your home, the Residence Nil Rate Band may still be available if the proceeds of the sale are inherited by direct descendants.   It is important to keep clear records of such transactions and appropriate advice to ensure you maximise the reliefs available to you.


If you would like to discuss this in more depth or in relation to a client's individual circumstances, please contact:


Samantha Lloyd, Partner - Head of Wills and Probate.


Direct Dial: 01905 332720

Added: 30 Jun 2017 09:56

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