Many people are broadly aware of the so called Nil Rate Band for Inheritance Tax (IHT) – the portion of your estate exempt from tax at 40%.

The exact figure is £325,000 per person and in the case of a married couple or a civil partnership you may also be aware that on the first death, there will be no IHT to pay if everything is left to the spouse or civil partner (spousal/civil partnership exemption) and the £325,000 attributable to the deceased can be transferred to their spouse/civil partner on the second death (Transferable Nil Rate Band) to give a total of £650,000. If the deceased had left non-charitable legacies to anyone other than the spouse or civil partner, the value of these will be deducted from the £325,000 being transferred.

There are some qualifying criteria such as couples having to be domiciled in a UK country but the really important point to remember is that the transfer is not automatic. To execute the transfer you will need to complete the relevant HM Customs & Revenue form (IHT402). This has to be done within two years. The cost of not doing so could be up to £130,000 (40% of the lost £325,000 exemption).

Unless you have had reason to investigate the issue recently you may not be aware that individuals now have access to a new relief introduced in April 2017. The Residential Nil Rate Band which applies to the value of the main residential property can be added to the £325,000 Nil Rate Band

The value of this exemption per person is as shown below and applies only if the property or the equivalent value is left to direct lineal descendants on the second death.

In fact this additional exemption can be claimed even if the persons concerned are not presently homeowners. There is a downsizing calculation which applies where a person has actually sold their main residence to downsize or perhaps go into care. This will allow a proportion of the allowance to still be claimed.

Residential Nil Rate Band

£100,000 to 5 April 2018

£125,000 in 2018 to 19

£150,000 in 2019 to 20

£175,000 in 2020 to 21

Beyond 2021 the value will rise in line with the Retail Price Index.

Again the value of this exemption can be transferred to a spouse or civil partner on the first death, however again the transfer is not automatic and needs to be claimed via the appropriate HM Revenue & Customs form within a two year period, or else you risk losing another £50,000 in tax, totally unnecessarily.

Please call us if you could be affected by these issues. Our Private Client team in Sevenoaks is available on 01732 457575, for Surrey please call 01483 284567. For our Bromley office call 020 8464 4646, for and for the London team call 020 7481 2422.