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Inheritance tax and trusts – Summer 2015 update

 

Posted on 20 July 2015

Inheritance tax  - “main residence nil rate band”

From April 2017 a new, transferable, nil rate band will be introduced in addition to the existing £325,000 threshold.  It will be worth up to £100,000 in 2017-18 rising to £175,000 by 2020-21 and will apply only when a main residence is passed to direct descendants (children or grandchildren) after death.
 
By 2020-21 this will create an effective threshold for married couples of £1M where a main residence is included.
 
Limits
 
There will be a withdrawal of the new nil rate band for homes where the total estate is worth over £2M at a rate of £1 for every £2 the estate is valued over the threshold.  As a simple example, if your estate were valued at £2.1M you would lose £50,000 of the new allowance.  The £2M threshold does not seem to take account of any reliefs for business or agricultural property for example, but we will wait to review the consultation and draft legislation as it appears over the next few months to assess the impact of this.
 
Downsizing
 
There will be provisions to assist those who downsize or cease to own their own home. The idea being that if you sold a large home worth (for example) £250,000 and purchased a smaller one worth £200,000  - provided you leave the smaller home plus £50,000 of other assets to direct descendants you should still qualify for relief.
 
Transfer to surviving spouse
 
Where some of the additional nil rate band is unused it will be transferrable to a surviving spouse or civil partner in the same way as the main nil rate band.
 
Continue to read our full summary here
 
 
 
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