New IHT rules – Some details released
One of the successes of the election was the Conservatives’ promise to move the family home out of IHT. This policy really helped them to win the election. We now know some of the policy’s detail, although more is being withheld until a consultation paper is issued and reviewed. This is what we know so far:
There will be a new allowance, called the Residential Nil Rate Band allowance (RNRB).
The RNRB will start in April 2017 at £100,000 and increase by £25,000 each year until it reaches £175,000 in April 2020.
As the RNRB is an individual allowance, a married couple will have a total allowance of £350,000 (from 2020).
The RNRB will be added to the existing two Nil Rate bands (NRB), giving a total of £1m free of IHT – providing your home is valued at a minimum of £350,000.
The RNRB comes before the NRB.
If your estate is worth more than £2m, the RNRB will reduce at a rate of £1 for every £2 in excess of £2m. This means that a couple will lose all the new RNRB if their estate is worth more than £2.7m (£2.35m for a single person).
The RNRB can be carried forward between spouses.
The RNRB can only be used against your home, not investment properties. However, if you have lived in your rental property at some point you can nominate this as your home. BUT, you can only ever have one home that will use the RNRB.
You MUST leave the home to a child or grandchild (which includes step- and foster children).
There are a number of other regulations and rules in the Finance Act 2015 that we have not gone into here as the points above are enough to take in. When the new rules come into effect in 2017, it is likely that a large number of Wills will need to be amended to take account of them. If we have written your Will we will be in contact to advise on the changes that need to be made.