Residence Nil Rate Band only used by one in five families
In the period 2017-18 the taxman banked a record £5.2 billion in death duties, a further £400 million from the previous year.
The rise in Inheritance Tax (IHT) over the past decade has been largely down to the rising house prices. Families who previously have not been subject to the tax are now finding that they are actually wealthier than they previously thought.
Recent figures from Direct Line Insurance have revealed the places where families were most likely to pay IHT; Guildford took the top spot with 658 families paying on average £231,000 each in 2015/16. South West London came a close second with Brighton in third place.
This news would be incentive enough to try and use every possible tax relief that may be available. Yet only one in five are taking advantage of the relatively new family home allowance, called the Residence Nil Rate Band (RNRB).
Residence Nil Rate Band
The Government introduced a tax-free allowance in April 2017 for families who leave their main property to direct descendants. For 2018/19 the allowance is £125,000. This is in addition to the already specified IHT allowances of £325,000 (single) and £650,000 (married).
The Residence Nil Rate Band is set to increase each April until it reaches £175,000 in April 2020. By then a couple will be able to pass on £1 million without IHT applying to their estate.
Out of a possible 24,000 estates that paid IHT in 2017/18 only 5,420 families benefited from this allowance.
Not everyone qualifies for the perk; for example, you won’t qualify if you do not have children. Many business owners may not qualify and if your estate is worth more than £2 million, the relief will be tapered and may not apply.
If your estate is above £325,000 but less than £450,000 and you qualify for the residence nil rate band, no IHT would apply. However, if you have made a will you should have it reviewed as a matter of urgency to ensure it is worded correctly and you don’t miss out on the relief. This will enable your family to notify HMRC when necessary.
How to apply for the RNRB
HMRC have said that the family home allowance is automatically applied as soon as the remaining family provides a will which shows that your main residence has been left to children or grandchildren – even if the relevant form is not completed in order to claim the relief. Your estate can also benefit from any RNRB that a deceased spouse did not use – this is not given automatically, it requires a formal claim to be made.
The tax office has also indicated that any overpaid IHT, due to inadvertently missing out on the relief, can be claimed back.
Choice Not Chance: Estate Planning Seminars, 27th November
We are running a series of free informative seminars over the coming months which will cover the RNRB in further detail, along with other important topics which will help to give you peace of mind for later life.
Our first event will take place in Chichester on Tuesday 27th November with three sessions running throughout the day: 10am, 2pm and 7pm.Click here to register for the event