Inheritance Tax – Residential nil rate band relief (RNRB) – do you need to review your Will?

image004A Will is a living breathing document. For it to be accurate at the time of death it has to be kept up to date to reflect any life changes that may have occurred since it was signed. If you don’t do this, you run the risk of it being challenged by an unhappy family member. To avoid this, it is important to make sure you keep your Will updated to reflect any major life changes.

Another layer of complexity and uncertainty is added to the inheritance tax legislation with the introduction of the new RNRB which arrived April 2017. Once the changes are fully implemented (2021), they will mean that each parent will be able to leave £500,000 in assets that include a residential property of at least £175,000 free of inheritance tax.

The RNRB can be transferred to a surviving spouse/civil partner to the extent that it has not been utilised on first death. On the second death it must be left to ‘Lineal descendants’ – children, grandchildren and remoter issue, adopted children, step children and foster children. If your Will leaves your entire estate to your children, there should be no problem with your estate claiming the RNRB, provided the other conditions are met.

If, however, your Will leaves your estate to your grandchildren either directly, or if one of your children has predeceased, then the availability of the allowance may be lost if the gift to the grandchild has conditions attached, such as them having to reach a certain age before they become entitled. This is quite a common way to draft gifts to grandchildren, it is therefore a good idea to review your Wills and take advice on any possible changes that you can make now to preserve the availability of the new allowance.

Another common way to gift to the next generation is to make use of a discretionary trust. Unfortunately, this kind of trust will not automatically qualify for RNRB. Whilst many Wills will already comply with the rules relating to the new allowance, there are some common situations where they will not.

If you would like to review your Wills, please contact us today.

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