In the Summer Budget, the Government formally announced their long promised plans to increase the Inheritance Tax threshold. In summary, your estate will be entitled to a new tax free allowance (the “MRNRB”) if a direct descendant inherits your home. This Blog will not outline the details of MRNRB but highlight some examples of individuals for whom it will provide little or no benefit:-
• You die before 6 April 2017. MRNRB will only be available if the deceased dies on or after that date.
• You have no children or grandchildren or you leave your house to a sibling, nephew, niece etc. MRNRB will only be available if the home is passed on to a descendant (albeit this includes step-children and certain Will Trusts from which a direct descendant can benefit).
• Your total estate exceeds £2.35m. In this case, no MRNRB will be available. For those with total estates between £2m and £2.35m, MRNRB will only be partially available.
• You gave your home to your children during your lifetime but died within 7 years of that gift. In those circumstances, the gift would be aggregated with the value of your personal estate to calculate the total Inheritance Tax due as a result of your death but MRNRB will not be available as it does not apply to chargeable lifetime gifts.
• You sold your home before 8 July 2015. The Government intends to introduce supplementary regulations extending the scope of MRNRB to those who have downsized or ceased to own a home (for example, in order to move into a care home) but these will only apply to sales on or after 8 July. The details of these supplementary regulations will be important and it is anticipated that there will be a Consultation in this regard in September.
• Your home is owned by a Trust of which you are a beneficiary. In that case, the value of the Trust Fund (including the house) is likely to be aggregated with the value of your personal estate to calculate the total Inheritance Tax due as a result of your death but MRNRB will not be available as it does not apply to a home held in Trust.
These ‘gaps’ in the availability of MRNRB have not been well publicised and may surprise many. On the other hand, the introduction of MRNRB presents a number of planning opportunities. In view of the complexity of these new rules, it is essential to obtain advice from an appropriate specialist to ensure that your affairs are organised in a tax efficient manner and you are passing on the maximum inheritance to your successors.