Review your Will - save inheritance tax!
If your Will is professionally drafted by a solicitor, it is usually the case that it does not need to be amended unless your circumstances change. For example, you have a new grandchild to whom you decide that you would like to leave some money to. You may have separated from your partner who you have named in your will as a beneficiary or your Executors have died.
However, with the laws around inheritance tax changing dramatically in recent times, it is crucial that you check to ensure your Will is still effective in ensuring that you pay the least amount of inheritance tax possible.
The Residence Nil Rate Band was introduced from 6th April 2017 which is an additional inheritance tax allowance where you leave your main residence to direct descendants. It is being introduced as follows:
2017-2018 = £100,000
2018-2019 = £125,000
2019-2020 = £150,000
2020-2021 = £175,000
This will work in the same way as the transferable nil rate band (where you apply for the inheritance tax allowance of the spouse who died first), which would mean, on the death of the second spouse, you would have potentially an additional £350,000 from April 2020 available on top of the £650,000 you already have free of inheritance tax.
This on the face of it, looks brilliant, as a married couple who leave their main residence to their direct descendants have a potential £1,000,000 free of inheritance tax from April 2020.
However, the rules surrounding the Residence Nil Rate Band are complex and I would suggest you obtain professional advice to ensure your Wills benefit from the allowance. An accurately drafted Will is crucial in ensuring you benefit from the allowance and save inheritance tax on your death.
In order to benefit from the Residence Nil Rate Band, you must have died after, 6 April 2017, your estate must include a qualifying residential interest and it must be closely inherited by direct descendants.
I list below a few examples where you have a Will in place but you may not benefit from the Residence Nil Rate Band:
You do not leave your main residence to your lineal descendants in your Will.
You leave your main residence to your children but there is an age restriction in your Will where you leave your estate to the children above the age of 25.
You leave your main residence to your grandchildren at an age greater than 18.
Your residuary estate which includes your main residence is split between direct descendants and non-direct descendants.
Your Will contains a discretionary trust or a nil rate band discretionary trust.
Your estate is worth more than £2,000,000.
Your main residence has been sold.
There are also convoluted rules in place surrounding what happens if you downsize and a taper relief that applies to reduce the Residence Nil Rate Band if your estate is above the £2,000,000.
If you contact a member of the Private Client Department at Bonnetts, we will be delighted to review your current Wills and advise you on the Residence Nil Rate Band.