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MRNB Reduces Inheritance Tax on Property

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.

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Making the most of Tax Free Inheritance Tax Relief

There are numerous ways to reduce your your exposure to tax liabilities and making sure you take advantage of Inheritance Tax Relief with the proper planning will help you minimise the amount of money from your estate that goes to the government.  Bourne Accountancy are experts in estate planning and can advise if any of the following reliefs could be applicable to your situation.

Business Property Relief (BPR) – Any ownership of a business, or share of a business will be included in your estate for Inheritance Tax purposes. However, you can get Inheritance Tax Relief of either 50% or 100% on some of an estate’s business assets such as business property, buildings and machinery. Ownership can be passed on as part of the will or while the owner is still alive subject to further rules.

Agricultural Property Relief (APR) – The government has been especially generous to farmers which is understandable given their strategic importance to the UK. The rules are that you can pass on some agricultural property free of Inheritance Tax, either during your lifetime or as part of your will. Agricultural property that qualifies for Agricultural Relief includes land or pasture that is used to grow crops or to rear animals intensively. It also includes farm buildings, farm cottages, farmhouses and stud farms, there are a few exceptions however such as farm equipment and machinery, derelict buildings, harvested crops and livestock and the rules state the property must have been in ownership for two years before.

AIM Listed Shares – The Alternative Investment Market (AIM) is a sub market of the London Stock Exchange designed to let smaller companies float shares. To encourage investment in these smaller companies the government provides a 100% Inheritance Tax Relief provided the shares have been held for a minimum of two years.

Unlisted Shares – Similar to AIM Shares there is a 100% exemption on shares held in a private company, again the shares have to be held for two years prior to death.  This can be a very useful relief for elderly and wealthy taxpayers who can still receive an income from the business without having to be concerned about the future IHT burden.

Listed Company Shares – If you have a controlling interest in a listed company then a 50% IHT relief is available.
Personal Assets – Certain personal assets which are used in a relation to business activities attract a 50% IHT relief.

Additionally, there are other, smaller inheritance tax reliefs that can be claimed:

  • An annual exemption of £3,000, Any unused allowance can be carried forward for one year.
  • Small gifts exemption of £250 per person.
  • Gifts on a marriage or civil partnership: £5,000 from a parent, £2,500 from a grandparent, £1,000 others

There is also an exemption for annual gifts made from income. Basically, a gift will not count as a gift for IHT purposes, if you can demonstrate that the donor’s annual income is at a level to make the gifts without affecting their ability to cover their usual monthly costs.

Gifts to an individual within the nil rate tax band, and with no strings attached, may still be made without any charge to IHT if the donor lives for 7 years after making the gift.

Bourne Accountancy are experts in Inheritance Tax planning and if you haven’t evaluated your estate for IHT purposes recently we strongly recommend a review. All you need to do is compile a list of your assets, let us have sight of your Will(s) and we can consider changes you might make to reduce your exposure to this tax.

Inheritance Tax Relief Information

To find out more about Bourne Accountancy please visit our main website: http://www.bourneaccountancy.co.uk or call us directly on 01293 399520.
To read more on the subject of Inheritance Tax please visit: http://inheritance-tax.bourneaccountancy.co.uk

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Inheritance Tax Simplification

Earlier this year, the Chancellor of the Exchequer and the Financial Secretary to the Treasury requested that the The Office for Tax Simplification (OTS) review key aspects of the inheritance tax (IHT) legislation and identify inheritance tax simplification opportunities within the administrative processes with which taxpayers interact with HMRC.

Inheritance Tax Simplification

According to information posted to the government’s website recently, the inheritance tax simplification review would appear to be wide ranging and issues to be examined include:

  • The process around submitting IHT returns and paying any tax, including cases where it is clear from the outset that there will be no tax to pay;
  • The various gifts rules including the annual threshold for gifts, small gifts and normal expenditure out of income as well as their interaction with each other and the wider IHT framework;
  • Other administrative and practical issues around routine estate planning, compliance and disclosure, including relevant aspects of probate procedure, in relation to situations which commonly arise;
  • Complexities arising from the reliefs and their interaction with the wider tax framework;
  • The scale and impact of any distortions to taxpayers’ decisions, investments, asset prices or the timing of transactions because of the IHT rules, relevant aspects of the taxation of trusts, or interactions with other taxes such as capital gains tax; and
  • The perception of the complexity of the IHT rules amongst taxpayers, practitioners and industry bodies.

If you have an opinion on this subject then be aware that The OTS is seeking views from those who have concerns about or personal experience of Inheritance Tax and have prepared an on-line survey which you can take part in (see link below). The survey closes on the 8th of June and will form part of the inheritance tax simplification report.

Paul Morton, OTS Tax Director, said:
This call for evidence and survey will help inform our research into Inheritance Tax and the recommendations we make in our final report. We know that there is a great deal to consider and we want to explore this with the help of individual taxpayers, as well as professional advisers and representative groups.

In a nutshell, while tax rates are for government, the role of the OTS is to challenge tax complexity and so help all users of the tax system, and so we hope to hear from as many individuals as possible. We are keen to hear both from those who have had some experience of dealing with Inheritance Tax and those who are concerned about it, but who may be unfamiliar with it.

If you wish to take part in the review or find out more about the review please access the OTS website which can be found at: https://www.gov.uk/government/organisations/office-of-tax-simplification

Bourne Accountancy are specialist IHT advisors and so will be keeping a keen eye on the outcome of these deliberations as they could turn even the most basic IHT planning on its head. We will keep readers informed when the OTS publishes its report although it may be some time before any changes are enacted and have a direct impact on estate planning. The OTS doesn’t envisage publishing its initial report until the Autumn of this year.

About The Office for Tax Simplification

The OTS is the independent adviser to government on tax simplification, challenging tax complexity to help all users of the tax system; it does not implement changes – these are a matter for government and for Parliament.
The OTS team is led by Chairman Angela Knight CBE and Tax Director Paul Morton and has a small staff drawn from HM Treasury, HM Revenue and Customs and the private sector.
The OTS works to improve the experience of all who interact with the tax system. It aims to reduce the administrative burden – which is what people encounter in practice – as well as simplifying the rules. Simplification of the technical and administrative aspects of tax are each important, both to taxpayers and HMRC.

Inheritance Tax Simplification Review by the Office of Tax Simplification

To find out more about Bourne Accountancy please visit our main website: http://www.bourneaccountancy.co.uk or call us directly on 01293 399520.
To read more on the subject of Inheritance Tax please visit: http://inheritance-tax.bourneaccountancy.co.uk