Changes to Inheritance Tax (IHT) which are set to come into effect in April 2017, will mean that you can bequeath an additional £175,000 tax-free by 2020, if certain conditions are met.
The new Residence Nil Rate Band (RNRB) allowance will only apply where a main residence is bequeathed to a direct descendent.
From 6 April 2017, the RNRB allowance will mean that people leaving a main residence to a direct descendent will receive an additional £100,000 tax-free allowance, over and above the existing £325,000 IHT nil rate band allowance. This means that you can bequeath up to £425,000 before incurring IHT, leading to a potential tax saving of up to £40,000 in 2017-18.
The RNRB will increase incrementally each year until 2020-21, when it will reach £175,000. This means that an individual, who takes full advantage of the RNRB allowance, will be able to bequeath £500,000 before incurring IHT.
A married or civil partnered couple will be able to bequeath £1 million before incurring IHT, so long as they have bequeathed a main residence worth £350,000 or more.
The total potential tax saving from the RNRB allowance for married or civil partnered couples will be worth up to £140,000 by 2020. This means that it is vital that you ensure your Will is drafted in such a way as to allow you to bequeath your estate as tax-efficiently as possible.
Reviewing your Will periodically is good practice in any event as this ensures that it reflects your current wishes, as well as any changes in circumstances since it was originally drafted.