Nil rate band advicePepperells
Will your estate pay Inheritance Tax when you die?
Will your beneficiaries suffer financially as a result of a large Inheritance Tax bill?
Are you aware of the current Inheritance Tax thresholds?
We are sure that you do not want to leave your loved ones with a large Inheritance Tax bill when you are no longer around. Nor do you want to make the administration of your estate more complicated than necessary.
At the present time if your estate is valued above £325,000.00 then your estate will have to pay Inheritance Tax of 40% on the part of your estate that is above the threshold.
For Example – Your estate is worth £500,000.00 and your tax-free threshold is £325,000.00. The Inheritance Tax charged will be 40% of £175,000.00. This means the Inheritance Tax liability for your estate will be £70,000.00.
However, if your estate is left directly to your spouse or civil partner then your estate can be passed on tax free. This will mean that your spouse or civil partner will then be entitled to a tax-free threshold of £650,000.00 when they die, as a result of the Transferable Nil Rate Band.
The Transferrable Nil Rate band was introduced in 2008. Before 2008, many couples with potentially taxable estates made complex Wills which included Trust provisions, to make their estates more tax efficient. Therefore, it may be that tax planning undertaken prior 2008 is no longer applicable or necessary and your Will could simplified, making life easier for your family.
Furthermore, your estate may also benefit from the Residence Nil Rate Band which was introduced in April 2017. This is an additional allowance for individuals who leave their property to a descendant. The Residence Nil Rate Band is current £150,000.00 for each person and is due to increase to £175,000.00 in the 2020/21 tax year.
The objective of the Residence Nil Rate Band is to reduce the burden of Inheritance Tax for most families by making it easier to pass on the family home to direct descendants without a tax charge. A direct descendent is your child (including step-child, adopted child or foster child) and their descendants.
The Residence Nil Rate Band can also be transferred to your spouse or civil partner. This means upon the second death of both yourself and your spouse your estate may benefit from two Residence Nil Rate bands.
You should be aware that your estate will not benefit from the Residence Nil Rate Band if your main residence is not passed to a direct descendent. Therefore, if you have included a Trust within your current Will, this may affect your entitlement to the Residence Nil Rate Band as the property may pass into the Trust rather than to your descendants.
If you made a Will prior to 2008 and sought Inheritance Tax advice, you should have your Will reviewed to see if this should be amended in light of the changes to the Inheritance Tax rules. Please contact Pepperells Solicitors for more information and a review of your current Will.