Last week we had advice for older clients concerning their entitlement to the state pension and for employers of young people who are repaying student loans. We also reviewed the changes just over the horizon for IHT.
The Budget on 8 July 2015 introduced the concept of an IHT nil rate band attached to the family home (“RNRB”). The latest HMRC Trust & Estates newsletter includes new guidance on the RNRB, and the current Finance Bill has been amended to clarify some points.
The RNRB will start at £100,000 per person for deaths from 6 April 2017 and will eventually be worth £175,000 per person from 2020. However, it will only be of use to taxpayers with children as the exemption will be restricted to homes which are left on death to direct descendants: eg to a child or the child’s widow/widower where the child died before the parent – as long as the widowed spouse has not remarried by the date they inherit the property.
Some families have already placed properties in a trust for the benefit of the children, or the Will provides that the property is to be held in a trust on the death of the parent. In such circumstances the RNRB will apply to the value of the property if the trust is:
- a trust for bereaved minors;
- 18-25 trust; or
- qualifying interest in possession trust.
Where the Will leaves the property to a discretionary trust for the benefit of the direct descendants the RNRB will not apply. This is a common structure used in Wills drawn up before 2007, so a review of the Will is now essential.
Another feature of the RNRB is to preserve its use where the family home has been sold since 8 July 2015, and the proceeds have not been fully invested in a new property. In other words the parent has down-sized or moved to rented accommodation such as a care home. The Government has issued a technical paper which attempts to explain how this down-sizing relief will work. It’s worth reading if you have clients in that situation.
This is an
extract from our topical tax tips newsletter dated 24 September 2015 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>
The full newsletter contained links to related source material for this story and the
other two topical, timely and commercial tax tips. We’ve been publishing this newsletter weekly since 2007; it’s clearly written
and focused on precisely what accountants in general practice need to know about each week.