By Andrew Mitchell, Tax Partner, Armstrong Watson

THE government’s tax take from inheritance tax (IHT) exceeded £5.2 billion in 2017/18, almost double what it was less than ten years ago. The main reason for this increase is that since April 2009, an individual’s IHT nil-rate band (the level below which no IHT is payable) has been frozen at £325,000 whilst asset values have continued to grow bringing more estates within the IHT net.

The introduction of the ‘residence nil-rate band’(RNRB) on 6 April 2017 was intended to increase the reliefs available to estates, giving married couples and civil partners up to £1 million of relief when fully introduced. However, individuals should not assume that they will obtain this relief automatically because there are some traps for the unwary.

The RNRB was initially set at £100,000, increasing by £25,000 each year until it reaches £175,000 in April 2020. Just like the standard nil rate band, any unused RNRB on the first death of a married couple or civil partner has the potential to be transferable even if the first death occurred before 6 April 2017. Therefore, by April 2020, spouses with estates valued at £1 million could be exempt from paying any IHT. However, the RNRB does come with conditions:

To benefit from RNRB:

• The deceased must have owned a property

• The property must be (or was) used as the deceased’s main residence

• The residence must be passed to a direct descendant such as children or grandchildren

Therefore people without children will not benefit from the relief. Furthermore, where a deceased’s estate exceeds £2 million, the amount of RNRB is reduced by £1 for every £2 it exceeds this amount. This might appear a high threshold, but if you own a business on death (which is exempt from IHT due to business reliefs), the value of this will be included when considering your overall estate.

The increase in the Government’s IHT take demonstrates that families are not planning ahead sufficiently to pass assets down to the next generation, but that can take a great deal of consideration, especially within a family business. To discuss your estate planning please get in touch on 01756 620021 or email me