Important changes to Inheritance Tax (IHT) take effect today, which enable married couples and civil partners to pass on a potential £900,000 completely tax-free.
In the UK, each individual is entitled to an IHT-free threshold or ‘nil rate band’ of £325,000.
Any estates valued at more than this typically incur IHT at a rate of 40 per cent.
But since April 2017, those who wish to pass on residential property to direct beneficiaries in their Wills have been able to benefit from an additional allowance or ‘residence nil rate band’ (RNRB) by seeking specialist legal advice to implement the necessary provisions in their Wills.
Previously, individuals taking advantage of the RNRB could benefit from passing on an additional £100,000 in property value to children, grandchildren, step children and foster children.
But as of today, this allowance has risen to £125,000 in property value.
As married couples or those in a civil partnership can combine their individual allowances, this means that couples can effectively pass on up to £900,000 completely free of IHT.
Individuals should also note that the RNRB is set to rise by £25,000 every April until 2020 – by which point couples should be able to pass on £1 million without incurring IHT.
The rules surrounding Inheritance Tax are complex and confusing and anyone thinking of taking advantage of the RNRB should seek specialist legal advice first.