Is your house too big for your needs? Are you thinking long term you may need to go into residential care? You might be concerned what the possible Inheritance tax (IHT) implications could be.
From April 2017 each individual was entitled to a standard nil rate band of £325,000 (so jointly with a spouse or civil partner this would equate to £650,000) along with an additional residence nil rate band (RNRB) of £150,000 for the tax year 2019/20, increasing by £25,000 to £175,000 for the tax year 2020/21 (again, jointly this would be £300,000 for 2019/20 and £350,000 for 2020/21). Potentially for 2019/20 the tax free threshold could be £475,000 for an individual (or jointly £950,000) when combining both the IHT nil rate bands. The purpose of this additional band is to make it easier for individuals to pass on the family home without incurring inheritance tax. The RNRB can be used against the value of your home if it is left to direct descendants on your death. Direct descendants include children or grandchildren (adopted, fostered or step children).
To benefit from RNRB, you do not have to own a property at the time of your death. If you decide to downsize to a smaller and less valuable property or dispose of your property and move into rented accommodation/residential care, you could lose some or all of your RNRB in the process. However, if this is the case there could be the option to claim ‘downsizing relief’ which would compensate for the loss of any RNRB as long as certain conditions were met:
- You must have downsized or disposed of your property before your death.
- The property must have been used by yourself and you would have ordinarily qualified for RNRB had you retained the property.
- You must have sold, given away or downsized to a less valuable home on or after 8 July 2015 and lost all or part of the RNRB in the process.
- Assets of the equivalent value must be inherited by your direct descendants on your death. The RNRB could be withdrawn in part should your estate be worth more than £2 million. Currently, this is at a rate of 50%, in other words you will lose £1 of the additional band for every £2 of your estate that exceeds £2 million.
The RNRB is only available for one residential property. There is no need to inform HM Revenue & Customs when you are downsizing, selling or gifting your former home, but you must keep records of its details, as the personal representatives of your estate will need these details in order to make a claim for downsizing relief within 2 years from the end of the month of your death.
The importance here is PLANNING!
If this is a concern or of interest to you, please contact our office to make an appointment to discuss your current Inheritance Tax position and arrange a complete IHT review.
Should you have any questions regarding IHT, please contact your local Haines Watts office.
Want to know more? Call us on 01225 751006 or email firstname.lastname@example.org