A Leeds law firm is urging individuals to check their wills to avoid ending up out of pocket following the introduction of new inheritance tax regulations.
Ison Harrison, which specialises in residential conveyancing and wills and probate, says the introduction of the new residence nil rate band (RNRB) means many wills are now out of date and will need reviewing or else people risk missing out on being able to take advantage of the new tax break.
The residence nil rate band allows a £1m family home to be passed on free of inheritance tax. It applies to individuals and couples who own a house which is inherited by children or grandchildren. Stepchildren, adopted children and foster children are also included.
The firm is also warning that as the conditions around how the new tax break will work are so complex many individuals could be caught out.
Beneficiaries have to be entitled to the property on the death of the property owner. If a beneficiary is only entitled to the property once they fulfil a certain condition then the relief will not apply, for example, if grandparents leave their home to their grandchildren on the condition that they reach the age of 25, the RNRB cannot be used.
From April 6th, it is possible for each individual to claim an additional allowance of £100,000 to offset the sale of a family home on death, on top of their existing £325,000 inheritance tax exemption. This increases by £25,000 each year until it reaches £175,000 in April 2020.
If the property value is less than the RNRB available any unused RNRB cannot be transferred against the rest of the estate. For estates worth more than £2million tapering relief will apply.
Importantly, if the family home is left to a surviving spouse on death then any unused RNRB can be transferred to the surviving spouse even if the deceased spouse died before 6 April 2017. If the deceased owned more than one property then their trustees can nominate which property the RNRB will apply to, as long as the deceased lived there at some point.
Dominic Mackenzie, Head of Wills and Probate at Ison Harrison commented: “Couples and individuals should regularly review their Wills to reflect changing circumstances. For example, if you do not own a house, if you own a house worth less than £350k, or you do not want to leave your house to your children, then the new rules do not really help you and you will need to plan accordingly.
“Married couples with an estate worth more than £2 million and all unmarried couples should consider redirecting assets on the first death to secure the maximum RNRB. It may also be prudent to include a specific provision in the Will to ensure that the maximum RNRB is applied.
A Deed of Variation can be used within two years of the date of death to vary what happens to the property but this is not always practical where there is a wide class of beneficiaries involved as consent from all is required. Given the complexity of the legislation and the confusion that is likely to ensue following its introduction, the best immediate course of action to take is to consult an expert lawyer and review the contents of the Will.”
For more information visit www.isonharrison.co.uk