Inheritance tax rules shift

Family homeowners will benefit from inheritance tax (IHT) rule changes from this month.

A new allowance, the residence nil rate band (RNRB), will add £100,000 to an individual’s own nil rate band of £325,000 on condition the main residence is passed upon death to direct descendants such as children, grandchildren and step-children.

The allowance, being phased in over four years, will rise £25,000 each tax year until 2020 when an extra £175,000 allowance per person will be available. The new band, also known as the family home allowance, is transferable between spouses and civil partners, permitting them to pass on up to £1m wealth without incurring tax.

Patrick Convey, technical director of specialist financial planners Cavendish Medical, said the increased IHT allowance was good news for doctors, but there were vital issues to consider. The new allowance will be unavailable to the childless or those with £2m+ estates, where the RNRB will fall by £1 for every £2 the estate exceeds this figure.

He said this might seem a substantial headline sum, but many families had seen significant growth in their property’s value since buying.

A couple each with property and investments worth £1.5m would be hit if the first spouse died leaving everything to the other.

‘The surviving partner suddenly has a £3m estate – far exceeding the family home allowance. This is where careful will planning can be so important.

‘We meet a surprising number of high-achieving individuals who have not reviewed their will in the last ten years, when new regulations, tax considerations and personal circumstances have changed considerably. It is imperative you check if your will and subsequent IHT plans are still fit-for-purpose.’

The basic IHT nil rate band has been frozen at £325,000 until the end of 2020-21 tax year.