As we near the end of another year, the attention of businesses and individuals (and their accountants of course) must turn towards what the next 12 months will have in store.
The 2017/18 tax year will see significant changes to inheritance tax (IHT) as the government introduces the residence nil-rate band. What is the residence nil-rate band and how might it affect your tax position?
The residence nil-rate band
A new nil-rate band of £100,000 will be introduced from April 2017 and will apply only when a residence is transferred to a direct descendant after death.
This threshold will be applied in addition to the current nil-rate band of £325,000, providing you with an overall £425,000 tax-free threshold when passing on a main residence.
The residence nil-rate band will increase over the next 4 years as follows:
- 2017/18: £100,000
- 2018/19: £125,000
- 2019/20: £150,000
- 2020/21: £175,000.
The £325,000 nil-rate band is scheduled to remain the same until the end of the 2020/21 tax year, potentially raising your IHT threshold to £500,000 over the next 4 years.
Your estate will be eligible for the residence nil-rate band as long as you:
- die on or after 6 April 2017
- own a home as part of your estate
- intend to transfer the home to direct descendants (for example children or grandchildren).
Watch out for the taper
Not all properties will provide you with such favourable tax benefits. In fact, the residence nil-rate band will gradually taper for properties worth upwards of £2 million. The nil-rate band will be lowered by £1 for every £2 that the value of the property exceeds the £2 million threshold.
Speak to one of our advisers to learn how we can help you lower your IHT bill.
Wishing you a Merry Christmas!
All the team here at Warr & Co wish you and your families a happy Christmas and a prosperous 2017.
Make sure to contact us if you have any tax or compliance queries – especially those related to the upcoming self-assessment deadline.