The residence nil-rate band, first introduced on 6 April 2017, will rise from £100,000 to £125,000 at the start of the 2018/19 tax year.
What is the residence nil-rate band and how can you use it to your advantage?
What is the residence nil-rate band?
The residence nil-rate band, also known as the family home allowance, is an additional inheritance tax (IHT) threshold allowing individuals to pass on property tax-free to direct descendants after they die.
The residence nil-rate band has been set at £100,000 since 6 April 2017.
However, this will increase to £125,000 from 6 April 2018, potentially providing eligible individuals with a £450,000 IHT nil-rate band.
It will increase to £150,000 in 2019/20 before reaching £175,000 in 2020/21.
The residence nil-rate band applies to an individual, meaning that from April 2018 married couples and civil partners will have a combined nil-rate band of £300,000 (on top of their £650,000 combined IHT nil-rate band).
Advantages and disadvantages
The advantages of the nil-rate band for qualifying estates should be obvious.
The opportunity to increase your IHT nil-rate band by £125,000 (£350,000 for couples) will make a huge difference to the IHT that will eventually be charged on your estate.
However, there are a couple of caveats to the additional nil-rate band.
The additional threshold will only apply to property being passed to direct descendants (children and grandchildren).
If you don’t have any direct descendants, your estate will not qualify for the residence nil-rate band.
The second thing to be mindful of is the value of your property.
Properties valued at more than £2 million will see a reduction in the benefits of the nil-rate band: the allowance will be reduced by £1 for every £2 that the property exceeds £2 million.
Our accountants and tax advisers are on-hand to assist you with your estate planning.