Residence nil-rate band to increase

HMRC collected more than £5.3 billion from inheritance tax (IHT) by the end of 2017, with that figure estimated to hit £6.5 billion by the end of the tax year next month.

Further to that, figures from the Office for Budget Responsibility in November 2017 showed IHT netted an extra £492 million since the introduction of the residence nil-rate band (RNRB) in April 2017.

According to analysis by NFU Mutual, this could be down to the Revenue adopting a more aggressive approach to analysing IHT receipts.

Sean McCann, chartered financial planner at NFU Mutual, said:

"The extra scrutiny from tax officials means those who haven't taken professional advice or planned early could be caught out. This could have a catastrophic effect on family wealth.

"IHT is one of the more complex taxes and there are plenty of traps to fall foul of - as many families appear be finding out."

Property and inheritance tax

Since 6 April 2017, the RNRB enables eligible people to pass on a property to family members and potentially save on death duties.

It introduced a £100,000 IHT allowance when passing on a family home and works on top of the £325,000 basic nil-rate band.

This gave a tax-free total of £425,000 in 2017/18, while an IHT charge of 40% is charged on the portion of estates worth more than this.

What are the criteria?

When an individual dies their estate will qualify for the RNRB if the deceased owned a home, or a share of one, that is included in their estate and left to their direct descendants.

These exclusively include children, grandchildren, stepchildren, foster children, adopted children and their lineal descendants.

What's changing?

Much like the basic nil-rate band, which remains unchanged at £325,000 for 2018/19, the family home allowance is transferable between spouses and civil partners.

However, unlike the basic nil-rate band, the RNRB is increasing from 6 April 2018 - to £125,000.

This makes it possible from April 2017 to obtain an IHT exemption of £450,000 for individuals and £900,000 for spouses and civil partners, assuming they meet the criteria.

Important considerations

Estates valued above the taper threshold of £2 million lose £1 of relief for every £2 excess. It's important to understand this applies to the total value of the estate, including any trusts.

There are also tax traps in place for receiving gifts left by will or trust, so it's wise to seek professional advice when placing assets or gifts into a will or trust to ensure they secure relief.

McCann added:

"The taxman is cracking down hard on IHT by looking more closely at people's estates and challenging claims for reliefs.

"When IHT receipts rise, it's usually because of a buoyant housing market. But property prices aren't rocketing in the same way, so it's difficult to see what could have caused such a sharp increase in receipts other than a more aggressive approach to inheritance tax.

"You'd expect the introduction of the RNRB would see receipts flatten out or even fall a little bit, but the opposite is happening."

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