Note: As of December 2013 Pilot Trusts are no longer useable as a tax planning…
In April 2017 there will be a new Nil Rate Band available to some UK families, it’s called the Residential Nil Rate Band (RNRB) and is designed to allow families to pass the family home to their children without any Inheritance Tax.
Families that can make use of this allowance have estates ranging between £650,000 and £2,000,000 and must own a home.
The new allowance isn’t an increase of the existing Inheritance Tax limit to £1million as has been widely reported, it is an additional allowance that, if used correctly, can mean that a family can pass up to £1million without Inheritance Tax. There’s a subtle difference here in that there are 2 Nil Rate Band’s per person, the existing one remains at £325,000 and the new RNRB which, growing from April 2017 to April 2020, will eventually allow another £175,000 tax free making the total £500,000 per person.
Both Nil Rate Bands need to be used separately in the wills of many families, particularly on first death where it is important that certain rules are adhered to.
The main element of the RNRB is that the deceased’s share of the family home or part of that share must pass directly or via a Life Interest Trust to the children or step children of the deceased. This means that people with wills that, on first death, pass everything to the surviving spouse may not qualify. They need to review their wills and make the necessary alterations.
If your estate falls in the band described above then you may want to make use of the RNRB to maximise the allowance on first and second death. We have developed and had approved a strategy for making this happen, treating both Nil Rate Bands separately, the existing Nil Rate Band being placed into a Nil Rate Band Discretionary Trust (used widely for flexibility, longevity and asset protection) at the same time placing a share of the family home or Principal Private Residence (PPR) into a Life Interest Trust naming the children as ultimate beneficiaries but allowing the surviving spouse to use the house for the rest of their lives. Our fee for these wills is detailed here.
If you need to read more about this new allowance, go to the government website and search RNRB, all the rules are there and a number of case studies.
If you are unsure if your personal situation could make use of this please contact us and we’ll be able to clear things up for you.