Inheritance Tax Changes – Residential Nil Rate Band

New rules regarding Inheritance Tax are being introduced from April this year could mean that many people and their estates miss out on a new tax break if their affairs are not in order.

From 6th April this year, a Residential Nil Rate Band is being introduced on top of the usual £325,000 Inheritance Tax allowance. The new allowance increases gradually so that by April 2020, a couple can leave up to £1 million without having to pay Inheritance Tax.

However, many people who drew up their wills prior to 2007, when the last major changes to Inheritance Tax were introduced, may have incorporated Discretionary Trusts within their wills as this was standard practice at the time to ensure proper use of the available Inheritance Tax allowances. The new allowances being introduced are only available if the will states that ‘direct descendants’ inherit and this may not be the case with a discretionary trust.

Michael Prendergast of Dickinson Parker Hill Solicitors, said, ‘Many wills are likely to have been drafted that use Discretionary Trusts as this was the right and proper thing to do at the time. However, the introduction of the new Residential Nil Rate Band does mean that those wills need to be reviewed to ensure they are up to date and can take advantage of the new allowance that is being introduced. Wills need to be regularly reviewed and changes may now need to be made as a result of the new allowance being introduced.’

It is estimated that around 100,000 families across the country will be caught out if their wills are not updated meaning that tax might end up being paid when it doesn’t have to be. If you would like to update your will please call our offices on 01695 574 201 or email us.

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