Q: I have just had my house valued and discovered it has risen considerably. I don’t have much cash but with the value of the house now exceeding £375,000 I am worried that it will mean my son having to pay Inheritance Tax when I die. I have considered signing the house over to him now, but at my age I am concerned I won’t live the required seven years after doing so for it to benefit him. What else can I do?
A: You may not need to do anything, as back in 2015 the government announced the introduction of a new ‘Residence Nil Rate Band’ (RNRB). This means that when parents or grandparents pass on a main residence to a direct descendent their estate benefits from an additional threshold on top of the existing basic IHT allowance currently standing at £325,000. The new threshold rises annually until it reaches a total allowance of £500,000 for individuals and £1mllion for couples.
In the current 2019/20 tax year the RNRB allowance for individuals is £150,000, giving a total allowance of £475,000. It will rise again by a further £25,000 in 2020/21. For couples this will mean an inheritance tax exemption on estates worth up to £1 million that are left in entirety to their descendants. Descendants are defined as children, including adopted and step-children as well as grandchildren and other lineal descendants..
On estates worth between £1 million and £2 million, IHT will be paid as normal on the amount above the tax-free amount. On estates worth £2 million or more, homeowners will lose £1 of the 'main residence' allowance for every £2 of value above £2 million.
As we get older and circumstances and legislation change, it becomes more important than ever to regularly update our Wills. You should make an appointment with a solicitor who specialises in Private Client matters to discuss your particular circumstances.