The Chancellor George Osborne announced important changes to Inheritance Tax in his budget earlier this month which included the introduction of an additional nil-rate band (ANRB).
The existing nil-rate band, frozen at £325,000 until 2021, will be supplemented by the ANRB which is set to be introduced from 6 April 2017.
The ANRB is only available when a residence is passed on death to direct descendants. A direct descendant in this case means children, grand-children,stepchildren and adopted or foster children. The person claiming the ANRB must have owned or occupied the property at some point. In situations where the person has an interest in more than one residential property his Executors will be able to nominate which residence will benefit from the ANRB.
Following the introduction of the ANRB, it will increase gradually. The initial allowance in the tax year 2017/2018 will be £100,000. It will then increase by £25.000 in each of the succeeding tax years until 2020.
By 2020 a married couple will have an inheritance tax allowance of £1,000,000 between them.
A single parent or divorced parent will have the benefit of their existing Nil Rate Band and the ANRB. Their Inheritance Tax allowance will increase to £500,000 by 2020.
The changes to the law do not allow for a single person who does not have any children to have the benefit of the ANRB.
As with any forthcoming changes in legislation, a broad overview can only be provided at this stage. The devil is always in the detail and we will be able to advise fully upon the changes once the legislation has been passed.