Changes to the Wills and Inheritance Tax Rules

Home / The changes to the Wills and the Inheritance Tax rules

From the 6^th April 2020, the Residential Nil Rate Band is set to increase to £175,000.

Combined with the standard Nil Rate Band of £325,000 available upon death this will mean that an estate will have a potential of £500,000 inheritance tax free on the death of an individual.

What is the Residential Nil Rate Band?

The Residential Nil Rate Band is an additional allowance to the standard Nil Rate Band threshold (currently £325,000).

In the main, the availability of the Residential Nil Rate Band in a deceased estate will be incumbent upon whether the deceased’s main residential property (the family home) is to be inherited by direct lineal descendants i.e. children/grandchildren.

The property can be gifted to direct descendants either by way of a Will or assented under the Rules of Intestacy applicable when someone dies without a Will i.e. when they die intestate.

Tax Free Allowance of £1 Million?

Whilst the standard Nil Rate Band is set to remain frozen at £325,000 until April 2021, the increase in the amount of Residential Nil Rate Band post 6^th April this year will mean that some estates will reach an amount of £1 million in tax free allowance.

The £1 million tax free allowance will be available to an estate where the second person in a marriage/civil partnership has died and where their deceased spouse/civil partner (the person to have died first) had previously left their whole estate to them on death.

How does it work?

The benefit of a marriage/civil partnership is that any transfer of property or money to a spouse/civil partner during lifetime or upon death is tax free.

Post October 2007 the standard Nil Rate Band (and now ultimately the RNRB,) is transferable to the surviving spouse/civil partner.

Subject to lifetime gifts and gifts upon death to someone other than a spouse, the second person to die in a marriage/civil partnership will have the benefit of both theirs and their Spouse’s NRB and RNRB in other words:

£1M inheritance tax free (2 x £325,000 NRB plus 2 x £175,000 RNRB)

Summary

Whilst the availability of the above tax free amount is subject to exemptions, e.g. gifting the primary property to someone other than a direct descendant and Tapering for estates over £2 Million, the change coming into force from 6^th April 2020 finalises the government’s plans for a £1 million tax free threshold originally set out in 2017.

It is worth considering whether your existing Will facilitates these changes enough for you to benefit from the maximum amount available on your death. Estate planning is an important aspect in ensuring that the NRB allowances are not wasted.

If you should have any questions about your existing Will and/or any of the above, you should contact our Private Client team to discuss further.

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