With the increase in property prices impacting the UK over the last twenty years more and more homeowners were finding they were liable for Inheritance Tax on Property. With this becoming a major issue for many people the Conservative Party promised to legislate a solution during their election campaign. The much publicised change was to take family homes of up to £1m out of Inheritance Tax charge completely and correct the difference on Inheritance Tax on Property.
The mechanism for enabling this is now part of UK law as is known the main residence nil-rate band or MRNB. The band has been set initially at £100,000 and increases over time:
- £100,000 from April 2017
- £125,000 from April 2018
- £150,000 from April 2019
- £175,000 from April 2020
It will then increase in line with Consumer Prices Index (CPI) from April 2021 onwards. Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner.
Other features of MRNB you need to be aware of are as follows:
- The additional nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.
- There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.
- The existing nil-rate band will remain at £325,000 from 2018-19 until the end of 2020-21.
- The MRNB relief will be available to married couples and civil partners.
The £1m overall relief will therefore not be achieved until April 2020. From this date, on the death of the first spouse or civil partner, if they leave their share in the family home to the surviving spouse or civil partner, this will pass IHT free and the deceased parties’ unused MRNB will pass to the surviving spouse. If the rest of the deceased person’s estate passes to the surviving spouse then their unused nil rate band of £325,000 will also pass to their surviving partner.
On the subsequent death of the survivor, if they leave their home to a direct descendant, their estate may be able to claim a combined MRNB of £350,000 (2 x £175,000) plus £650,000 combined nil rate band (2 x £325,000); a total relief of £1m.
The government has published a number of advisory notices regarding the new band including the following https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band which provides some useful examples.
Reducing Inheritance Tax on Property with MRNB
If you would like personal advice concerning Inheritance Tax on Property in order to reduce the burden for your loved ones and ensure that you have all the right plans in place to ease your family’s inheritance tax costs, contact our very own IHT expert Paul Johnston at Bourne Accountancy online or call 01883 708090.
Bourne Accountancy also provides free business advice via our website www.bourneaccountancy.co.uk, and dedicated IHT site http://inheritance-tax.bourneaccountancy.co.uk. We cover the following areas should you wish to meet in person: Addington, Ashtead, Banstead, Biggin Hill, Beckenham, Bletchingly, Bromley, Chipstead, Caterham, Carshalton, Coulsdon, Crawley, Croydon, Dorking, Godstone, Horley, Kenyley, Lingfield, Merstham, Oxted, Purley, Redhill, Reigate, Sanderstead, Selsdon, Shirley, Sutton, Tandridge, Tatfield, Warlingham, Westerham, Whyteleafe.