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Changes to Inheritance Tax

If you are currently studying the Legal Secretaries Diploma course and have studied the Wills, Probate and Administration module, you will be familiar with the fact that inheritance tax is not currently payable on estates below the “nil rate band”. The nil rate band (NRB) is currently set at £325,000, meaning that for any estate over this figure, tax is payable on the difference at the rate of 40%. 

However, as of 6 April 2017, a change to this law has come into effect.

In addition to the nil rate band (NRB), a residence nil rate band (RNRB) has been introduced which will also apply in some circumstances. The RNRB applies in addition to the existing NRB or threshold (currently £325,000) if the individual and estate meet the following qualifying conditions:
•    The individual dies on or after 6 April 2017
•    The individual owns a home, or a share of one, so that it’s included in their estate
•    The individual’s direct descendants such as children or grandchildren inherit the home, or a share of it
•    The value of the estate isn’t more than £2 million

The amount of RNRB will be staggered, meaning that the RNRB will increase year on year; therefore the additional RNRB for deaths in the following tax years will be:

•    £100,000 in 2017 to 2018
•    £125,000 in 2018 to 2019
•    £150,000 in 2019 to 2020
•    £175,000 in 2020 to 2021

For later years, the maximum RNRB will increase in line with inflation (based on the Consumer Prices Index).

To provide an example of this change, if A dies on 7 April 2017 without a spouse and with a home worth £500,000 and leaves this to his children, then the additional RNRB of £100,000 will be applicable. This will mean that inheritance tax is payable only on anything over £450,000. The inheritance tax will therefore be payable on the difference of £50,000, meaning that the 40% tax payable is £20,000.

As you can see, this change will make a significant difference to the inheritance tax paid by the beneficiaries of the deceased if they meet the four qualifying conditions. 

Further information regarding the coming changes can be found here:
https://www.gov.uk/guidance/inheritance-tax-residence-nil-rate-band

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