How wealthy do you have to be to be liable for inheritance tax on your estate?
In order to pay inheritance tax on death your assets need to be at least £325,000 if you are single or £650,000 jointly if you are in a civil partnership or married.
Should you reach the above criteria then your loved ones will have to pay 40% death duties on assets above those levels.
Happily the introduction of a new allowance — the residence nil rate band (RNRB) — applies to residential property when it is left to direct descendants.
It will result in an additional £100,000 of nil-rate band — the term for the tax free allowance — in 2017-18, rising to an additional £175,000 in 2020-21. As a couple will have two family home allowances along with their existing nil-rate band — the £325,000 allowance — they will eventually be able to pass £1m to their children without attracting IHT.
But as with all rules there are restrictions on who can benefit from the new allowance.
Direct descendants include children, grandchildren, step-children, adopted and fostered children and their spouses or civil partners.
They do not include nephews, nieces and siblings.
The RNRB only applies in cases where the home, or part of it, was owned by the deceased and included in their estate.
It does not need to be in the UK but it must have been lived in at some stage by the deceased before their death.
The rules have been criticised for their complexity but the basic principle is straightforward.
Simply put, it means that the value of the property used in calculating the IHT bill is reduced by the new allowance.
If the value of the home is less than the maximum available RNRB, the unused amount of RNRB cannot be set against the other assets in the estate. However, the unused RNRB would be available to transfer to the deceased’s spouse or civil partner’s estate when they die.
The introduction of RNRB will undoubtedly mean that any current will containing certain types of trusts should be re-drafted in order to ensure that they take advantage of the new exemption.
My advice is for clients to review their wills every few years as you cannot guarantee that the will you made 10 years ago would be appropriate now.
Huw Worthington is senior partner at Worthingtons Solicitors and specialises in wills and administration of estates. Should you have any queries in relation to this article, or require legal advice on making a will, contact the Belfast or Newtownards office on 02890434015 or 02891811538.