News & Views

Inheritance tax and the additional nil-rate band

The “nil-rate band” (the amount of your estate which is not subject to Inheritance Tax upon death) is due to remain as it is, at £325,000, for the next six years. However, the Government recently introduced the “additional nil-rate band” which is due to come in to force in 2017. But what does this mean and who will it benefit?  Private client solicitor Raveet Phull explains the impact and why it may be wise to have your Will reviewed.

Changes to the nil-rate band - your Will may need a review

How could the proposed additional nil-rate band affect your estate and inheritance tax?

The additional nil-rate band will start off as an extra £100,000 which will be available when a residence is passed on death to direct descendants. For example, where a father passes a property to his son in his Will and dies after April 2017, his Estate will be able to benefit from a £425,000 nil-rate band.

What happens upon the death of the second parent?

Similarly, take a common situation where a couple makes Wills passing their Estates to each other on the first death and then to their children on the second death: Upon the second death, the Estate will have two nil-rate bands available (2 x £325,000 = £650,000) and, provided there is a property in the Estate, two additional nil-rate bands available (2 x £100,000). Therefore the total tax free amount of the Estate will be £850,000.

In summary: the effect of the nil-rate band on a couple’s estate

The additional nil-rate band is due to increase year-on-year and this will have the following effect on a couple’s estate:

How will the additional Nil-rate Band affect your estate?

How will the additional Nil-rate Band affect your estate?

*for a deceased’s Estate provided, upon the first death, everything went to the surviving spouse and upon the second death the Estate (which must include a residence) goes to direct descendants (children, step-children, adopted children and their linear descendants).

Potential savings for couples

The potential saving for a couple with a £1m estate, including a property, is £140,000 after 2020 – a sizable sum and a welcomed development especially for families who are asset rich but do not necessarily have the liquidity in place to pay Inheritance Tax.

Time to get your Will reviewed?

I recommend that all Wills, especially those containing nil-rate band trusts, are reviewed in light of the new legislation, which is expected to come in to force in 6th April 2017.

If you would like a chat about this, please contact me at your convenience.

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