The new Tax Year is upon us and we have a few allowance changes to consider, not least the continued tapering of the Residence Nil Rate Band.
This was introduced in 2017, honouring a key commitment in the Tory Manifesto back in 2015 to improve the opportunity of leaving the family home to your children in your will without it incurring Inheritance Tax.
A claim for the new allowance can be made for deaths occurring after 6th April 2017, and the bands which will apply are as follows:
£100,000 in 2017 to 2018
£125,000 in 2018 to 2019
£150,000 in 2019 to 2020
£175,000 in 2020 to 2021
Therefore, the RNRB level has now increased to £150,000 and if a person leaves a family home to a direct descendant, they will benefit from the RNRB as well as the ordinary nil rate band. This is clearly good news, although the ordinary nil rate band remains frozen until tax year 20/21.
Therefore, you still need to consider what other ways are available to mitigate any future IHT bill. An excellent solution is simply to give assets away. However, we do recognise that most people can’t just hand their assets over, especially as there are rules around gifting, that require you to live for seven years before IHT is fully mitigated. You should also note that can have no ability to continue to benefit from the gift (for example, you can’t simply give your house away and continue to live in it).
One simple idea is to gift up to £3,000 annually which immediately falls outside of your estate for IHT purposes. Whilst this may only be a small amount when calculated against the value of your estate, it is clearly an allowance that will benefit your estate in the longer term. £3,000 for one year may not feel significant, but £30,000 over ten years start to make inroads into your IHT liability.
Another solution you may consider is to use the start of the new Tax Year to select a few charities that you may wish support. Regular contributions are often the lifeblood of many charities and £50pm would make a huge difference to them.
Therefore, why not consider the difference you can make now to matters close to your heart, whilst also mitigating your future IHT bill?
It really does feels like a win win situation.
Should you wish to read further information concerning the RNRB, please find enclosed a link to the Government website