As part of our review of the measures outlined in the March 2020 Budget, in this post, we take a look at the position for Inheritance Tax.
Inheritance Tax (IHT)
The importance of understanding the tax allowances and reliefs for IHT is to take advantage of:
- the short term opportunity of using your annual allowances (available on a “use it or lose it” basis) to make modest gifts
- the lifetime opportunity of making significant gifts and surviving seven years for the Potentially Exempt Transfers to fall out of your estate for IHT purposes
- the longer term opportunity of leaving legacies in your Will to utilise reliefs such as Business Property Relief or Agricultural Relief so that no IHT is payable on parts of your estate.
IHT nil rate band (NRB)
The NRB has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2021.
IHT residence nil rate band (RNRB)
The RNRB is in addition to the NRB and allows the family home to be passed more tax efficiently to direct descendants on death.
For deaths in 2019/20 it is £150,000 and rises to £175,000 in 2020/21. Thereafter it will rise in line with the Consumer Price Index.
There are a number of conditions that must be met in order to obtain the RNRB, which may involve redrafting an existing Will.
Downsizing relief
The RNRB may also be available when a person downsizes or ceases to own a home on or after 8 July 2015 where assets of an equivalent value, up to the value of the RNRB, are passed on death to direct descendants.
Office of Tax Simplification (OTS) review of IHT
There were no announcements relating to IHT in the Budget in response to the OTS review instigated by a former Chancellor of the Exchequer.
The clear implication is those contemplating lifetime giving of assets within their families should consider doing so now to take advantage of existing rules and reliefs.
If you believe you may be affected by the IHT provisions, please contact us at Ritchie Phillips.