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Wills, Probate & Trust

Your £1M inheritance tax free allowance is finally here… or is it?!

Monday, April 6, 2020

At the moment I am finding it hard to remember a time pre Covid-19. Before that it felt like Brexit had been with us forever. But, if you think back very hard, before all of that, when Boris was still the Mayor of London, you might remember an announcement that the inheritance tax threshold would be increased to £1M. Well today, 6th April 2020, is the day when that announcement finally becomes reality….. well sort of. In reality, having the full allowance available depends on many things, including the contents of your Will.

So how do you work out if you are entitled to a £1M tax allowance? The simple answer is “with great difficulty, and not without professional guidance”. However the points below might assist you in identifying if the allowance could be relevant to you and whether you need to take further action to make sure that you can claim it:

  1. The Nil Rate Band has not changed. This is still £325,000 per person.
  2. The change is the introduction of the Residence Nil Rate Band, which for deaths on or after 6 April 2020 is up to £175,000.
  3. If the full Nil Rate Band and Residence Nil Rate Band are available then this totals £500,000 (or the magic £1,000,0000 per couple).
  4. If your spouse has predeceased you may be able to claim an additional allowance, but you will need certain information about their estate to do so.
  5. The amount of the Residence Nil Rate Band that can be claimed is limited by:
    • The value of your residence (less any mortgage);
    • The value of your estate overall – large estates of over £2M will struggle to claim any additional allowance at all.
    • Who your residence is passing to on your death – In broad terms this must be your children or grandchildren. Your spouse, partner or civil partner do not feature on this list of qualifying beneficiaries.
    • How your residence is passing to beneficiaries on your death – if it is via a trust (which includes a gift when a beneficiary reaches a certain age) then it must be the right type of trust.

Are you at risk of losing your additional allowance? The answer might be ‘Yes’ if your estate is over £325,000 and any of the following apply:

  1. You have not made a Will
  2. Your Will contains gifts to grandchildren upon them reaching a particular age (or to your children at an age later than 25)
  3. Your Will contains trusts – For example, did you make a ‘tax planning Will” before 2008? If you did then this may prevent the Residence Nil Rate Band being available.
  4. You have a large mortgage on your residence, but your other assets could push your estate over £325,000
  5. Your estate is worth over £2m
  6. You have downsized to a smaller property since 2015
  7. You are widowed and do not have full information available regarding your late spouse’s estate.

These issues can all be overcome, but the rules are too complex and there are too many traps to navigate successfully without guidance. The good news is that we can quickly and identify any issues as part of our free Will Review. We can either then put your mind at rest that all is on order,  or suggest solutions to maximise your allowance and minimise any IHT bill. The solution may be something very simple such as a small amendment to your Will, or collating certain records. With the Residence Nil Rate Band providing a reduction to your inheritance tax bill of up to £70,000 per person (£140,000 per couple) it really is worth making sure that you have everything in place for your family to quickly and easily make this claim on your death.

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