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Published on: 7th March 2017

Inheritance Tax thresholds

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Normally referred to as The Nil Rate Band (NRB) Allowance and the Residential Nil Rate Band (RNRB) Allowance. One of the primary reasons for estate planning is to minimise the amount of inheritance tax (IHT) payable on your estate after you have passed away. Every individual has a NRB allowance. This is the value of your estate which you can pass upon death, inheritance tax free (strictly speaking it is taxed but the rate is 0%). Changes in legislation have resulted in additional NRB tax allowances which will be slowly introduced over the next few tax years.

So what is the current NRB tax allowance and how will these changes affect us all? The current NRB allowance is £325,000; this means if your entire estate is below this value when you pass away, then there will be no inheritance tax to pay. If the value of your estate is above this value then you will be taxed on everything over the value of £325,000 at the current rate of 40%. For example if the value of your estate if £400,000, the taxable estate will be £75,000 which means your estate will pay £30,000 IHT. This NRB tax allowance is however, transferable between spouses. Therefore, if your spouse predeceases you and only uses up a portion of their allowance, you are entitled to your allowance plus the remainder of theirs. The changes in legislation have resulted in an additional NRB tax allowance when your primary residence, i.e. your home, is passed to a direct descendant upon your death. The government definition of your direct descendants includes your children, step children, adopted children and foster children and their lineal descendants. This is known as the RNRB. The additional allowance will begin on 06 Apr 2017 and will progressively rise each tax year. From 2017 to 2018 the additional tax allowance will be £100,000 resulting in a potential total NRB tax allowance of £425,000. From 2018 to 2019 it will further increase to £125,000 resulting in a total of £450,000. From 2019 to 2020 it will be £150,000 equalling £475,000 and from 2020 to 2021 the additional allowance will be £175,000 resulting in the final NRB tax allowance being £500,000. This additional allowance allows you to ultimately pass more on to your children without incurring IHT. The additional allowance only refers to your primary property and not the whole value of your estate. Furthermore, the property must be passed after death; this can be through a direct gift or through a trust such as a life interest in property trust. The gift will not qualify for the additional allowance if it is being passed through a discretionary trust, such as a NRB discretionary trust. Similar to the current NRB tax allowance, the additional allowance will also be transferable between spouses on the condition that your direct descendants are the ultimate beneficiaries. It is worth remembering however, that unlike the NRB tax allowance which applies to your entire estate, the additional allowance only applies to your primary residence.

Do you need to do anything? Here at Casey & Associates, we offer several trusts that may assist you to minimise the amount of inheritance tax paid on your estate. If you own a residential property and plan to gift your property to your children on death, we would recommend a review with one of our Consultants, who will be able to best advise you on whether you qualify and how to make use of the additional tax allowance. If you are married (or in a civil partnership), own a home and have a Will which currently contains a NRB discretionary trust, you should contact Casey & Associates to determine whether a different trust would suit your circumstances better. Please click here to book a review.


If you would like to meet one of our Consultants and discuss any of the issues raised in this article or any other Estate Planning topic, please telephone 01732 868190 or

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