IHT on Private Residences Not So Simple
20th October 2017Back to articles
Inheritance Tax (IHT) is a concern for many families and although it is sometimes described as a 'voluntary' tax, because with appropriate forward planning it is often avoidable, there are still many pitfalls that can trap the unwary or ill-advised.
This situation is not helped by the lack of clarity or intuitiveness in many areas of IHT law. An example of this is the new 'residence nil-rate band' (RNRB) of £100,000, which many people assume is simply a £100,000 increase in the IHT nil-rate band (currently £325,000) on chargeable estates.
Regrettably, like so many aspects of IHT law, it isn't quite that simple. Firstly, the RNRB does not apply if there are no 'lineal heirs' (children or grandchildren) and it only applies to the value of a deceased person's 'residence'. So, the estate of a person who died resident in a care home but who retained a holiday home would not qualify for the relief.
The deduction is applied to the total estate, and is transferable to a surviving spouse.
However, the amount transferred is not an absolute sum, but rather the percentage of the nil-rate band which has been unused in the first estate.
What this means is that the availability of the RNRB, and hence the IHT liability of the joint estates of a married couple or civil partners, can depend significantly on how the estate has been dealt with in the will of the first of the couple to die.
In many instances, the impact will be that a will should provide the transfer of the matrimonial home to the surviving spouse intact. However, that in turn may add to the risk of the equity in the property being eroded to pay care fees.
Graham Fuller, Head of Private Client says "IHT planning needs to be carried out carefully, in the context of not only the applicable law and an understanding of all the possible implications of property transfers and the like, but also with a good knowledge of the family circumstances. Solicitors are ideally placed to advise you."
For information and advice contact us at of any offices below:
Devizes – 01380 722311
Chippenham – 01249 47833
Marlborough – 01672 518620
Royal Wootton Bassett – 01793 853200