ASM focus on Inheritance Tax …
£ 1M INHERITANCE TAX NIL RATE BAND ( Subject to Government ’ s Terms and Conditions !)
During their 2015 election campaign , the Conservative Party pledged to “ take the family home out of Inheritance Tax by raising the Nil Rate Band to £ 1 million for couples and civil partners ”. When the Conservatives got elected they did not simply increase the current Nil Rate Band ( NRB ) but introduced the Residence Nil Rate Band ( RNRB ) in order to meet their campaign pledge . In this article , Caroline Keenan , Tax Director at ASM Chartered Accountants outlines the Inheritance Tax rules in Northern Ireland
Residence Nil Rate Band An estate will be entitled to a RNRB if all of the following conditions are met :
• An individual dies on or after 6 April 2017 ;
• The individual owns a home or share of a home that will be included in their estate ;
• The individual ’ s direct descendants such as children or grandchildren inherit the home or a share of the home ; and
• Their estate is valued at £ 2 million or less .
The RNRB will start at £ 100,000 in the 2017 / 18 tax year , rising to £ 175,000 in the 2020 / 21 tax year . For later years it will increase in line with inflation . The RNRB will be restricted to the value of the home . For example , Mr Smith dies on 6 May 2019 when the RNRB is £ 150,000 , but his home is valued at £ 125,000 . In this instance the RNRB will be restricted to £ 125,000 and the remaining £ 25,000 cannot be added to the NRB .
Like the NRB , the RNRB is transferable to the spouse and available to use on the second death . The RNRB can still be transferred even if the first death occurred before 6 April 2017 .
So from the 2020 / 21 tax year , the £ 1M Nil Rate Band can be achieved by the surviving spouse where the maximum NRB and RNRB (£ 325,000 and £ 175,000 respectively ) have been transferred from the deceased spouse and then added to their own NRB and RNRB . The RNRB is not available in respect of lifetime transfers and does not apply to gifts to Discretionary Trusts for the benefit of lineal descendants , even on death . The home does not need to be the deceased ’ s Principal Private Residence but must be a property that was owned by the deceased and lived in at some point before death .
The RNRB is also available on Gifts with Reservation of Benefit . If the deceased transferred their home to their children prior to death but continued to live there , the home remains in the deceased ’ s estate for Inheritance Tax purposes , which is a Gift with Reservation of Benefit . The RNRB is not available on buy to let properties .
For estates valued at more than £ 2 million the RNRB will be reduced by £ 1 for every £ 2 that the deceased ’ s estate exceeds £ 2 million . Therefore , when an estate is valued at more than £ 2.35 million in the 2020 / 21 tax year , no RNRB will be available .
When calculating the value of the
deceased ’ s estate in respect of their entitlement to RNRB , no consideration is given to spousal exemptions and Inheritance Tax Reliefs such as Agricultural Property Relief and Business Property Relief . For example , if the deceased ’ s estate comprises shares in a private limited trading company valued at £ 6 million and other assets worth £ 1.8 million , despite Business Property Relief providing 100 per cent relief from Inheritance Tax on the shares , entitlement to RNRB would be nil as the full value of the estate before reliefs (£ 7.8 million ) must be used for the RNRB calculation .
Downsizing
If the value of the house in the deceased ’ s estate is lower than the maximum RNRB , it may be possible to claim a downsizing addition in order to benefit from the full RNRB . The Downsizing Addition must be claimed by the deceased ’ s Personal Representatives within two years of the deceased ’ s death and the following conditions must be met :
• The deceased downsized to a less valuable home or ceased to own a home , on or after 8 July 2015 ;
• The former home would have qualified for the full RNRB if it had been owned at death ; and
• At least some of the deceased ’ s estate is inherited by the deceased ’ s lineal descendants . While the Conservatives did not entirely deliver on their promise to increase a couple ’ s and civil partners ’ NRB to £ 1 million , it is expected that the RNRB will remove approximately £ 9.5 billion of residential properties from the Inheritance Tax net .
Inheritance Tax can substantially reduce the value of an estate that can be passed on to future generations . Fortunately , with careful planning , Inheritance Tax liabilities can be significantly mitigated or even reduced to nil .
ASM Chartered Accountants , which has six offices , Belfast , Dublin , Dundalk , Dungannon , Magherafelt and Newry . The 160 strong team specialises in a range of accountancy disciplines including , corporate finance , Insolvency services , forensic accounting , Audit & accounting , consultancy services , internal audit , tax , hotel , tourism and leisure .
* This material has been prepared for information purposes only , and is not intended to provide , and should not be relied on for , tax or accounting advice . You should consult a professional adviser before undertaking any tax planning .
MOREINFORMATION
For further information , please contact Caroline Keenan , Tax Director at ASM Chartered Accountants on 028 90249222 or caroline . keenan @ asmbelfast . com
52 www . businessfirstonline . co . uk