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Insight | For Individuals

Residence Nil Rate Bands and Unmarried Couples

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We have witnessed property price inflation over the past several years, however, the inheritance tax thresholds have not followed suit and therefore liability to inheritance tax has become an increasing threat to family wealth.

An individual’s Nil Rate Band remains at £325,000, that is, inheritance tax up to that value in an estate is taxed at Nil %. A taxable estate in excess of that is liable to inheritance tax at 40%.

This can be onerous upon the estate’s beneficiaries; inheritance is payable before access to the deceased’s estate can be obtained. It is therefore important to use all the inheritance tax reliefs available.

Often, the deceased’s property is the main asset within an estate. The Residence Nil Rate Band can only attract against one property. Even if the deceased had not recently lived in the property, provided it remains part of their estate at the time of death, the Residence Nil Rate Band can be used.

The Residence Nil Rate Band is available if the deceased owned a residential property at the time of their death in which they previously resided and, by virtue of their Will, or the rules intestacy, that property is being inherited by children, grandchildren or subsequent generation. The Residence Nil Rate Band can supplement an estate’s Nil Rate Band to the tune of £175,000, making for a combined individual total of £500,000 before an estate becomes taxable, in simple terms.

Complications have arisen where a deceased leaves their share in a property on trust for the benefit of another, usually in the form of a right of occupation, for a period of time or, for the lifetime of the occupier, before it is ultimately inherited by a descendant.

Trust arrangements are often employed in Wills to negate the surviving property owner falling liable to care fees on the deceased’s owner’s portion of a property.

Depending on the wording of the deceased’s Will or, whether they were married to the individual being left the right of occupation, can determine whether the additional £175,000 is available or not.

Not acting soon enough after someone’s death can mean that the opportunity to remedy any defective Will clause is lost.

Practically, outstanding Will issues can mean that a deceased’s beneficiaries can be faced with a significant inheritance tax bill whilst at the same time being kept from their gifts for an uncertain period of time.

If you are worried about your future estate being at risk to inheritance tax it is always best to take periodic advice to ensure that your Will is up-to-date with the latest legislation and decided case law.


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