Do I need to change my Will in light of the new Inheritance Tax Residence Nil Rate Band?

Since significant changes were made to the Inheritance Tax (IHT) regime in 2006 and yet further changes are due in April 2017, it is more important than ever that you consider reviewing your Will.

Prior to 2006, Discretionary Trusts were encouraged by financial advisors and solicitors as being the most common and effective form of Inheritance Tax Planning.  There will be thousands and thousands of people nationwide who established trusts in their Wills as a way of minimising the Inheritance Tax liability that would be due on their estate at the date of their death.

From 6 April this year, the new “residence nil-rate band” forIHT– sometimes referred to as ‘the family home allowance’ – takes effect. The changes seek to provide a furtherIHTallowance on top of the current Nil Rate Band of £325,000 per person. This further allowance can be offset against the value of the deceased’s interest in their principal residence provided it is gifted to lineal descendants.

The additional allowance for the 2017/18 tax year will be a maximum of £100,000. The relief is then set to increase by the sum of £25,000 per tax year up to 2020/21. By the time the changes are fully rolled out in the 2020-2021 tax year, this will mean that a couple will be able to pass on a property worth £1m free of tax.

One of the main issues with the proposed changes is that gifts of the main residence into Discretionary Trusts will expressly prohibit the residence nil rate band from being claimed. This is because a gift into a Trust does not qualify as a gift to a lineal descendant.

It needs to be stressed therefore that people who have incorporated a gift into a Discretionary Trust in their Will need to take action to review their current Will to ensure that it still represents the best option for them.

For people who have already died leaving a Will which incorporates a Discretionary Trust, the Trustees of that Trust need to seek advice as soon as possible (and in any event within two years of the death) to maximise any relief that could potentially become available to offset against the estate of the deceased’s surviving spouse.

For further information on the Residence Nil Rate Band, or to arrange an appointment to discuss your individual needs contact us on 0161 764 5266.