Top London solicitors call on people to reassess their estate ahead of major tax change
Solicitors at one of London’s top mid-tier law firms, Mackrell Turner Garrett, are calling on people to reconsider their estate and will arrangements ahead of a significant rule change to Inheritance Tax coming into effect in April 2017.
In recent years more families are finding themselves subject to Inheritance Tax as a result of growing property prices. In fact, according to the latest data from HM Revenue & Customs almost three times as many estates are expected to face a liability to Inheritance Tax in 2017 compared to 2011.
With this in mind the Government is preparing to introduce the new Inheritance Tax residence nil-rate band from April this year, which will allow a couple could to pass on up to eventually £1 million in total to their direct descendants by 2020.
Under the current rules, individuals are each entitled to pass on £325,000 of wealth tax free each, regardless of whether or not they own a property, while married couples and civil partners are entitled to share the allowance if their estate is left to the surviving spouse/civil partner on the first death– boosting their tax-free allowance to £650,000.
This is known as the “nil-rate band allowance” or “inheritance tax-free threshold” and any asset or capital held within an estate that is above this amount could incur a flat-rate Inheritance Tax charge of 40 per cent if no other exemptions or reliefs from inheritance tax apply.
In comparison, the new residence nil-rate band allowance will offer an additional tax-free allowance of £100,000 per person in 2017, rising to £175,000 per person from 2020, resulting in reduced Inheritance Tax liabilities when a deceased person’s main home is inherited by their spouse/civil partner child, grandchild, step child or adopted child, and subject to other strict conditions (e.g. no additional allowance where estate exceeds £2.35 million).
The RNRB will also be transferable between married couples and civil partners; even if one partner dies before its introduction in 2017 and where there is more than one residential property in the estate the family can nominate which one should qualify.
Jeffrey Cohen, Head of Mackrell Turner Garrett’s Private Client department, said: “This additional allowance will be very welcome to the thousands of people facing the prospect of Inheritance Tax, especially those who hold a significant amount of wealth within their home but this will also mean every person must review his/her will to ensure where possible the estate can benefit from the rule change”.
The additional nil-rate band will also remain available when a person downsizes or ceases to own a home on or after 8 July 2015, although evidence of the sale of the property will be required. Assets and property left in trust will not qualify unless the only beneficiaries are direct descendants and the terms give them at least a life interest in the home.
“There are a number of steps that people can take to ensure their estate is more tax efficient thanks to the reliefs and options on offer but people do need to plan to make the most of them” said Jeffrey.
He believes that families would benefit from seeking professional advice to ensure that their requirements are met, whilst minimising their tax liabilities.
“With careful planning and the right advice much more wealth could be passed on to the next generation, so it is definitely worth exploring all of the options available,” added Jeffrey.
To find out more about Mackrell Turner Garrett’s range of Private Client Services, please call 020 7240 0521 or email firstname.lastname@example.org.