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8 May 2018 0 Comments
Posted in Life, Opinion, Private Client

IHT Rules are changing… are you losing out?

Posted by , Trainee solicitor

One of the most popular legal services available on the internet is Will-writing. But where do they stand on the scale of effectiveness and, crucially, enforceability after death? Investigations have found that these platforms are not keeping up with the changes in inheritance law, meaning those using these services, without legal advice, could be missing out on changing tax allowances.

As of 6 April 2020, a £1 million property may be left to children or grandchildren, tax-free. However, part of the allowance must be separately applied for, and there have been warnings that the paperwork required for this application could baffle even those with masses of experience in dealing with HMRC.

IHT reforms

You may have heard of the introduction of the Residence Nil Rate Band (RNRB) in the 2015 budget. This is relatively new and is not to be confused with the Nil Rate Band (NRB) which is each and every person’s ‘IHT-free’ allowance of £325,000. The RNRB came into force in April 2017 and is now increasing annually until 2020, meaning it will change every year until then.

The RNRB currently stands at £125,000 per eligible person until 5 April 2019, at which point it will increase again to £150,000. The final increase will be seen from 6 April 2020, after which the allowance will remain at £175,000 for the foreseeable future, barring any changes to the law.

This combination creates a total basic tax allowance of £500,000 for each eligible person. Your £500,000 allowance is also transferable to a spouse or civil partner, meaning that when the first spouse or civil partner dies, they may leave their allowances unused, allowing their surviving spouse or civil partner to accumulate a larger tax-free allowance. An attractive aspect of transferring one’s tax allowances to a spouse or civil partner is that the value of this allowance is assessed upon the surviving spouse or civil partner’s death. For example, if A died in July 2018 and used their RNRB, this would be valued at the current rate of £125,000. However, if A died in July 2018 but left their RNRB unused, to be utilised by their surviving spouse or civil partner (B), and B dies in August 2020, both RNRBs will be valued at £175,000, even though A died before the allowance increased.

When combined with a spouse or civil partner’s allowance, this allows for a £1 million property to be inherited by children or grandchildren, tax-free, by 2020.

Unlike the NRB, which is automatically applicable to every person, the RNRB must be applied for with a separate Inheritance Tax (IHT) form. Without it, your estate could bear IHT on an additional £125,000 (currently) of your estate which it may not have to.

Make sure your beneficiaries receive the maximum they’re entitled to.

The omission of the RNRB on a tax calculation could mean that the average person’s estate is liable for tens of thousands of pounds more IHT than is necessary.

Speaking to a solicitor means you can draft a will, create a trust or make a gift which is tailored to your financial needs and wishes. Although technology is developing and progressing every day, it still must be programmed, meaning that it only has a finite amount of questions it can ask in relation to your position. Wealth management and Wills are possibly one of the areas of law where creativity and communication are most fundamental.

Are you covered?

As technology catches up with dogs as a human’s best friend, it is important to remember that it may not always be the best at what it does. Every person is different, so it cannot be that a ‘one size fits all’ approach can suit everyone.

We can tailor your plans to make sure your Will and all gifts you leave are as tax-efficient as possible, and make you aware of your IHT liability. Whatever your needs and wishes, we can help to create a unique Will or trust to suit you.

 

Contact our Private Client team, who are based throughout our offices in London, Bath, Swindon and Oxford, to book a no-obligation initial meeting:

0800 151 2058     Email uspc.enquiries@roydswithyking.com

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