HMRC Tax Break from April 2017

HMRC has announced a new and welcome tax break when leaving a house to a child or grandchild

New Inheritance Tax rules come into force on 6th April 2017 that apply to all deaths on or after that date. These new provisions are an extension of the existing Residential Nil Rate Band rules and provide a rare and welcome tax break from HMRC.

From 6th April 2017 it will be possible to increase your Nil Rate Band for Inheritance Tax purposes by leaving a residential property to a child or grandchild. This increase will be added to your basic Nil Rate Band (currently £325,000 per person) and could reduce the amount of tax paid on your estate.

The amount that can be added through this new procedure will increase incrementally from £100,000 in 2017/18 to £175,000 in 2020/21:

  • £100,000 in 2017/18
  • £125,000 in 2018/19
  • £150,000 in 2019/20
  • £175,000 in 2020/21

For example: leaving a property worth £100,000 to a child who inherits in 2017/18 would increase the deceased’s Nil Rate Band from £325,000 to £425,000. This increased amount can then be applied to the deceased’s whole estate and/or transferred to a spouse.

To benefit from these new rules, there must be a property that is inherited by a “direct descendent” of the person who has passed away – for example a child, step-child, or grandchild (and/or their spouses) who receive the property on the death of their parent, grandparent, etc. The other requirements are that the deceased must have owned all (or part of) the property on death; the property forms part of deceased’s estate on death; and the deceased must have lived in the property at some point in their life (Therefore buy-to-let properties will not benefit from these new rules).

Further guidance and case studies on this topic can be found on the HMRC website

© By Tim Taylor, 1st March 2017

A rare and welcome tax break when leaving a house to a child or grandchildHastings Legal Lab
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