The nil-rate band has been statistic at £32,000 for many years, despite regular and growing criticism of successive Parliaments failure to alter this. The nil-rate band is the amount a person can leave to otherwise chargeable beneficiaries free of Inheritance Tax. At one time it kept in line with inflation but those days are long gone.
This issue has been addressed and from the 6th of April 2017 the new residential nil-rate band will be introduced, initially, at £100,000 but increasing by £25,000 each year to a maximum of £175,000. Ti benefit from this, the home (and there are various tracing provisions in play which allow the residential nil-rate band to apply even, in fact, if the residence has been down-graded to a value below the residential nil-rate band or sold in its entirety) must be left to linear descendants, being children and grandchildren. The difficultly comes if it is left to minor children (or minor grandchildren on the death of an adult child). It is usual to interest in the will an age at which that child would inherit, not less than 18 years old but quite often 21 or 25. The tax rules have been drawn up in such a way that this contingency trust will not qualify the recipient to benefit from the residential nil-rate band. Therefore, the Inheritance Tax on that portion of the residential nil-rate band will be lost. From the 6th of April 2017 that will be 40% of £100,000 or £40,000 lost to the tax man.
Therefore, it is essential that an immediate and thorough review of wills is undertaken so that the “right” type of trust can be inserted in the wills which will qualify the estate for the residential nil-rate band (if the qualifying factors are overcome, of course). Please appoint to see any member of the wills team to take your instructions.