What is the Residence Nil-Rate Band?
In April 2017, a new inheritance tax nil-rate band of £100,000 was introduced, this covers the main residence or other qualifying property the deceased lived in when it is passed to descendants. The new residence nil-rate band applies to those who wish to leave their property to direct descendants, including:
- Children
- Grandchildren
- Adopted children
- Step-children
- Foster children
It is important to note that nieces and nephews are not considered direct descendants, so those planning to leave their property to nieces and nephews will not benefit from the new residence nil-rate band and therefore not everyone will be able to use it for inheritance tax planning purposes.
If you are unsure whether the residence nil-rate band could be of benefit to you it is advisable to seek independent financial advice from a Financial Conduct Authority registered advisor. At Castlegate, we provide independent financial advice in Lincoln and the surrounding areas to support you with all aspects of financial planning and wealth management to ensure you have the most effective and efficient strategies in place.
How does the residence nil-rate band work?
The allowance will be introduced in stages over a four-year period, from April 2017 a limit of £100,000 will apply per person, rising to £175,000 per person in 2020. The residence nil-rate band allowance is in addition to the individual allowance for inheritance tax, which is currently £325,000 per person.
Once the changes are fully implemented, each parent or grandparent will be able to leave £500,000 in assets that can include a family home component of at least £175,000. The allowance can be passed on to the surviving partner when the first partner dies, meaning the living partner could have an allowance of £1 million.
Only one residential property can qualify for the relief, in the instance of there being more than one property in the estate it is possible to nominate the property you wish to qualify. Under the rules of the new residence nil-rate band allowance, the deceased must have lived in the property, therefore buy-to-let properties that the deceased has never lived in will not qualify.
The family home does not have to be owned by the deceased at their time of death to qualify, if the deceased has sold the home to downsize, move into residential care or move in with a family member. It is imperative to seek independent financial advice before making any changes to your estate, at Castlegate, we provide independent financial advice in Lincoln and across the East Midlands on all aspects of estate planning and wealth management.
Providing the property would have qualified for the residence nil-rate band if retained, the allowance can still be used if the replacement property or assets form part of the estate to be passed on to descendants. Under the new rules, the downsizing or selling of the family home must have taken place after 8th July 2015. There is however no time limit on the period between disposal and the date of death.
At Castlegate, we provide independent financial advice in Lincoln and the surrounding areas to support you with all aspects of financial planning and wealth management to ensure you have the most effective and efficient strategies in place. As an experienced independent financial advisor in Lincoln we provide financial advice that is tailored to your unique personal circumstances.
If you are looking for independent financial advice in Lincoln or across the East Midlands from a firm of Chartered Financial Planners, please do not hesitate to get in touch to talk about the most appropriate solutions for your personal circumstances and financial objectives.
