The Finance Bill clauses give the detailed provisions for a new inheritance tax (IHT) relief, announced in the Summer Budget, for persons who die on or after 6 April 2017. The relief, the “residence nil rate amount”, applies to qualifying residential property left to direct descendants. Not all the aspects of the new relief announced have been covered in the Finance Bill; legislation dealing with circumstances where the deceased has downsized or disposed of their residence during their lifetimes will be in next year’s Bill.
Relief is restricted to a property which has been the person’s residence, and part of their estate on death, and is subsequently inherited by lineal descendants. If the estate consists of more than one qualifying property, the personal representatives must nominate which property is to qualify.
Each individual will be entitled to a basic amount (£100,000 rising to £175,000 for deaths on or after 6 April 2020) plus any unused amount from a predeceased spouse. This combined amount will be reduced by £1 for each £2 that the total value of the person’s estate exceeds £2m (these thresholds will be indexed from 6 April 2021).
Relief on death is restricted to the value of the residence, after other reliefs and exemptions, but the excess of the available nil rate amount can be carried forward to the death of any surviving spouse on a claim being made by their personal representatives. Where the spouse died before 6 April 2017 the unused amount is set at £100,000 although this is subject to tapering if the first spouse’s estate exceeded £2m.
Lineal descendants for this purpose include step-children, adopted and foster children and the wards of guardians. The interest in the residence can be held in trust provided it is taxable as part of the deceased’s estate and similarly the interest can be left on certain types of IHT favoured trusts where lineal descendants are beneficiaries.
The rules are not straightforward and individuals and couples may need to review their Wills and estate planning to obtain the maximum relief they are entitled to.