From 06 April 2020, individuals will be able to pass down more of their hard-earned estate than ever before. Changes to Inheritance Tax (IHT) rules will see the residential nil rate band increased to the maximum £175,000, meaning an individual can pass down up to £500,000 to family members tax-free.
When combined with a spouse or partner’s allowance, the maximum tax-free allowance increases to £1 million.
The residence nil rate band is a new IHT allowance introduced on 06 April 2017. Under the current rules, an individual can pass down an additional £150,000 (increasing to £175,000 in 2020/21) to a direct descendent tax-free, providing the estate includes a primary residential property.
For tax relief purposes, a direct descendent is considered a child, grandchild or other lineal descendant, or a husband, wife or civil partner of a lineal descendant (including their widow, widower or surviving civil partner).
This also includes step-children, adopted children, fostered children and children where the benefactor was appointed a guardian or special guardian when the child was under 18.
Do note, however, that the tax relief is tapered for estates valued in excess of £2 million, reducing by £1 for every £2 that the estate is worth more than the £2 million taper threshold.
To find out more about the residence nil rate band allowance, click here.
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