Inheritance Tax – Residence Nil Rate Band
A new Inheritance Tax allowance comes into force on 6th April 2017. This will apply to property left to direct descendants. The Residence Nil Rate Band, as the new relief is called, means that from this year, a new tax free allowance will apply to a property left by a deceased person to a descendent. If there is more than one property in the estate, the executor can decide which property is to be allocated for this purpose.
This allowance starts at £100,000 and will rise in £25,000 blocks over the next 4 years until, in the tax year 2020/21, it will stand at £175,000. If the property is held in joint names of a married couple or civil partners, each of the parties enjoys this relief - and it’s transferrable from one to the other on death if it’s not been used up.
Here are the basic rules. The Residence Nil Rate Band will apply if the:
- individual dies on or after 6 April 2017
- individual owns a home, or a share of one, so that it’s included in their estate
- individual’s direct descendants such as children or grandchildren inherit the home, or a share of it, and
- The value of the estate isn’t more than £2 million
Direct descendants include, the children, grandchildren and further lineal descendants of the deceased. They also include the spouse or civil partner of a direct descendant. Also included are step children, adopted children, fostered children and children of whom the deceased was guardian. You can find an outline of what are considered to be descendants on the HMRC website. You can click here to view this information.
Direct descendants don’t include nephews, nieces, siblings and other relatives who aren’t included in the list above.
The Residence Nil Rate Band is in addition to the current Inheritance Tax (Nil Rate Band) threshold of £325,000. This is also transferrable between spouses or civil partners if it is not exhausted on death.
The total Inheritance Tax allowances available to married couples and civil partners from the tax year 2020/21, will be £1 million – and after that the allowances will increase in line with inflation (as measured by the Consumer Price Index).
There are a number of helpful case studies on the HMRC website ranging from the most simple and straight forward to the very complicated. You can view those case studies by clicking here.
Interestingly, if one spouse or civil partner dies before April 2017(whether or not they owned a share of the property or had already passed a share to children), the survivor will be able to use both of their family home allowances when he or she dies.
If you have a Will, you need to make sure it’s up to date so that you can take advantage of this tax-free allowance. If you don’t have a Will, you need to make one now to ensure you can decide who will benefit from this allowance.
Inheritance Tax planning is a complex process and we recommend this be undertaken by an expert in this field.
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Contact us on 0141 887 5271 (Paisley) or 0141 886 5678 (Renfrew).
It May Not Be A Princely Sum, But It Should Go To The People Of Your Choosing…
Amongst the many news stories last month there was one in particular which certainly saddened many people around the world - the passing of musical legend, Prince.
He was a musician who considered every aspect of his work and was particularly meticulous in terms of distribution and while the news of his passing certainly shocked the world, what is also surprising is that Prince had no Will, or at least no known Will, this brings an uncertainty as to who will inherit his estate.
As is protocol in the state of Minnesota, his siblings should divide his assets equally, but with such a large estate with so much to share and uncertainty about future royalty income, the process may be somewhat more complicated.
Similarly in Scotland, if you do not make a Will your estate will be handled in accordance with the law of succession, further demonstration of the importance about making these decisions now.
With a fortune estimated to be worth hundreds of millions, Prince’s siblings attended the first hearing this past Monday, but with no Will to refer to, this initial meeting lasted less than 15 minutes. With the search for any existing Will continuing and an executor yet to be appointed, there is a strong possibility that this process could take years to complete.
As a musician, Prince built an impressive portfolio and career and his current assets are estimated to be in excess of $150 million, with his siblings, who are the main beneficiaries set to potentially inherit a small fortune each. Furthermore, future royalty earnings from his music and image rights also have to be taken into account when deciding who gets what. However, the absence of a Will, will certainly delay the division of his assets.
In Prince’s case, the court now needs to appoint an executor whose job is all the more difficult in the absence of a verified Will, it would have been much simpler had Prince appointed someone he trusted to look after the division of the estate.
Your Assets
Appointing an executor needn’t be a long and drawn out process; however, the role is of great significance and and careful consideration should be placed on who you appoint, after all, they will be responsible for ensuring the wishes expressed in your Will are carried out the way you wish.
The musician’s assets include property, studios and musical royalties and while this particular situation may be somewhat more complex than most, making a Will is certainly very important, not only to public figures, but to anybody with any assets – no matter how small.
Contact Walker Laird today and we can help you with our Will Writing service at either our Paisley office, or our Renfrew office.
Paisley: 0141 887 5271
Renfrew: 0141 886 5678