Significant Change to Inheritance Tax and Estate Planning: What You Need to Know

Inheritance Tax is currently charged at 40% if an estate has assets valued above the nil rate threshold which is £325,000, although the rate of Inheritance Tax drops to 36% if you give away at least 10% of your estate to charity.  A married couple who leave their estate to each other are able to transfer their unused nil rate band to their survivor.

In April 2017 a new nil rate band (RNRB) was introduced specifically for passing on the family home. Initially this allowance provides an extra £100,000 each to those estates where the family home is being passed to direct descendants, the allowance will increase by £25,000 each year to reach £175,000 in 2020. However this is restricted if the estate is worth more than £2 million, when the allowance becomes tapered away.

With the new allowance in place, couples could potentially pass up to £1 million tax-free when they die.

An estate will be entitled to the additional threshold if:

  • the person dies on or after 6 April 2017
  • The person owns a home, or a share of one, which is included in their estate
  • their direct descendants such as children or grandchildren inherit the home, or a share of it.


The RNRB is available only when the deceased owned or had part ownership of a property that was their residence at some point during the period of ownership

The RNRB cannot be offset against other properties owned by the deceased; for example, buy-to-let or investment properties. However, if the deceased has two homes, then the personal representatives can nominate which property will utilise the RNRB.

Any individuals who do not own their home will be unable to utilise the RNRB as they will not have a qualifying residential interest (although the RNRB may still be available in some cases – for example where the deceased ‘downsized’ or sold a property to move into residential care).

Those that have released equity from their property will be affected, as it is the net value of the home that will be used, so the value of any outstanding loan against the property will have to be deducted.

The allowance is not available if an individual, a married couple or civil partners do not have any lineal descendants that qualify, so they will be unable to use the RNRB.

As tax advisers and licenced probate administrators Hill Lillis in Sutton Coldfield provide a comprehensive service to those looking for IHT and estate advice. If you are struggling to deal with a deceased estate or simply making plans for the future do contact us for a professional, cost effective solution.

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