With Cambridge house prices soaring by over 75% in the past decade, now is the time to review your Will - as from 6 April 2017, there will be an additional Inheritance Tax (IHT) relief known as the residence nil rate band (RNRB).
New Inheritance Tax relief set to benefit many Cambridge home owners
The initial RNRB will be £100,000 in tax year 2017/18 increasing each tax year by £25,000 to £175,000 in tax year 2020/21. As with the current nil rate band (NRB) the tax-free amount of £325,000, any unused RNRB can be transferred to a surviving spouse or civil partner, with the result that the maximum combined inheritance tax threshold for married couples/civil partners will increase to £1 million by 6 April 2020.
To qualify for the additional IHT relief the deceased must hold at the date of their death a ‘Qualifying Residential Interest, which must be ‘closely inherited’ by ‘lineal descendants’ and the estate does not exceed £2million.
Qualifying Residential Interest
This refers to any interest owned by the deceased in any property that has been used by them as a residence during their lifetime, which may include foreign property but excludes buy to let property. It can also be claimed against property which is no longer owned at the date of death, for example if a person has downsized or has moved into residential care. Should you downsize or dispose of a house in which you have resided you should keep appropriate records in relation to the sale or transfer to enable your Personal Representatives to claim any RNRB on your death.
To qualify for the RNRB the residence or cash/investments representing a former residence must be ‘closely inherited’ by a lineal descendant absolutely (i.e. outright), either by Will or under the intestacy rules. If your Will contains a trust it is important that you review it with your solicitor as only certain trusts will qualify.
These include children, grandchildren, stepchildren, foster children, adopted children and even the spouse or civil partner or widows/ widowers of any of the above.
For every £2 that the estate exceeds £2 million the RNRB will be reduced by £1. As a result in tax year 2017/18, an estate worth over £2.2 million will not benefit from the RNRB at all. When the relief reaches £175,000 in 2020/21, this will increase to £2.35 million. Even if these provisions wipe out the availability of the RNRB, do remember that the size and complexity of an estate fluctuates over time - which is why you should keep your estate planning under constant review.
The introduction of the RNRB is generally good news for homeowners in Cambridge - it could see many estates lifted out of liability towards IHT. Clearly, it is advisable to review your Will in light of these provisions – especially where a property is to be left in trust, or if your Will contains mixture of lineal and non lineal descendents so as to ensure that your estate qualifies for the full relief.
Here at Woodfines Solicitors, our Private Client Property team offer friendly advice and will be happy to assist you.
Woodfines Solicitors, Lockton House, Clarendon Road, Cambridge, CB2 8FH
Phone number 01223 411421
With offices in Cambridge, Milton Keynes and Bedfordshire, Woodfines Solicitors provide a full range of legal services to businesses and individuals.