April 2017 sees the introduction of the new ‘residence nil-rate band’ (RNRB), meaning that many individuals may be able to pass on a family home tax-free on death.
Inheritance tax is currently charged at 40% on the proportion of an individual’s estate exceeding the ‘nil-rate band’ of £325,000. Married couples and registered civil partners can already pass any unused nil-rate band to one another on death.
Under changes announced by the government, an additional nil-rate band will be introduced for each individual to enable a ‘family home’ to be passed wholly or partially tax-free on death to direct descendants such as a child or grandchild. A step-child, adopted child or fostered child is also regarded as a direct descendant.
The RNRB is set to come into effect from 6 April 2017 and is in addition to an individual’s own nil-rate band. The RNRB will be set as follows:
The additional band can only be used in respect of one residential property. The property does not have to be the main family home, although it must, at some point, have been a residence of the deceased.
There will be a tapered withdrawal of the RNRB for estates valued at more than £2m. This will be at a withdrawal rate of £1 for every £2 over this threshold.
|On chargeable gains||2017/18|
|Total taxable income and gains|
|Up to higher rate threshold||10%|
|From higher rate threshold||20%|
Higher rates (18%/28%) may apply to the disposal of certain residential property and carried interest.
Annual exempt amount – individuals £11,300 and most trustees £5,650.