Main residence nil rate band - What does this mean to you?

With recent changes having been made to the legislation surrounding Inheritance Tax, it is now more important than ever to take expert advice when considering your Will.

With the introduction of the Main Residence Nil Rate Band (MRNRB) on 6 April 2017, how will this affect an individual’s inheritance tax position and is there a requirement for some prudent planning?

The MRNRB can help to protect an individual’s main residence from inheritance tax, provided various criteria are met. The MRNRB can only be used against a main residence that is left outright to direct descendants (which includes children, grandchildren, step-children and adopted children).

The MRNRB allowance provides individuals with an “additional” nil rate band which can be used towards their home. For some, this is a potentially significant tax saving tool.

The MRNRB can only be used for a residence which has formed part of an individual’s estate during their lifetime. If there is more than one residence at the time of death, the executor can elect which property is to be covered by the relief. To use the MRNRB, your property must be “closely inherited.” This means it must be left to direct or lineal descendants or to a spouse or civil partner. Whilst the legislation refers to a residence being left outright to direct descendants, the MRNRB will still be available if the main residence passes to a trust following a death, in certain limited circumstances.  Property held following death in an immediate post-death interest (liferent) trust will be included, as will property held in bare trust and property held in trust for a “bereaved minor” and on “age 18 – 25 trusts”.  Any other trust arrangements, such as property passing to a trust with an age contingency beyond age 25, or property passing to a discretionary trust will not be covered by the MRNRB.

Like the Nil Rate Band, the MRNRB is transferable between spouses and civil partners, even if the predeceasing spouse or civil partner did not own a property at the time of their death.

The MRNRB will start at £100,000 per person from 6 April 2017 and increase incrementally to a maximum of £175,000 by 2020/21. With careful estate planning and by ensuring you have the right Will in place for your circumstances, it will be possible for couples to benefit from an inheritance tax threshold of £1 million once the Main Residence Nil Rate Band is fully implemented.

It is important to note, however, that estates worth more than £2 million will see the MRNRB allowance tapered even if a property is left to direct descendants. The MRNRB will be reduced by £1 for every £2 that the value of the estate exceeds the £2 million threshold. In these circumstances, it would be sensible to consider reducing the value of your estate to ensure that this threshold does not have any wider reaching implications for family members.

Should you wish to discuss how the introduction of the MRNRB will affect you or to review or make a Will to ensure you are utilising all tax allowances available, please contact Gilson Gray’s Private Client team who would be delighted to guide you through the process.

[info]

For More Information Contact:
Laura King
Mobile: 07841 920 095
Direct Dial: 0131 516 5359
Email:lking@gilsongray.co.uk

[/info]

[info]

For More Information Contact:
Ailidh Ballantyne
Direct Dial: 0141 530 2037
Email:aballantyne@gilsongray.co.uk

[/info]

The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.