Can you claim inheritance tax relief on your home?

Leeds Day

Can you claim inheritance tax relief on your home?

An inheritance tax relief on houses, commonly known as the residence nil rate band was introduced 2017. This has had the effect of removing many family homes from being subject to inheritance tax. Yet people could still miss out completely on this relief unless they review their wills and an executor may pay inheritance tax unnecessarily if they are unaware of how to correctly claim the reliefs available to them. The inheritance tax allowances can be briefly summarised as follows: • Everyone can pass on assets worth in total £325,000 in the event of their death before being subject to inheritance. This is known as the “nil-rate band”. • If spouses and civil partners pass all their wealth to each this is tax free, on the second death two sets of the tax free sum can be claimed as the transferable nil-rate-band. This can increase the nil-rate band available up to £650,000. • The residence nil-rate-band allows executors to potentially claim an additional inheritance tax relief of £175,000 on the family home on death.

This is also transferrable between spouses so allows £350,000 to be claimed as tax free on second death. • The tax allowances together give spouses and civil partners a tax free tax allowance of £1million • Anything over the available inheritance tax allowances and relief is taxed at 40%. • Estates worth more than £2,000,000 will start to lose the residence nil-rate band. However, not everyone can qualify for the residence nil-rate band allowance. The residence nil-rate-band is only available when estates are directly inherited by children, stepchildren, adopted children or grandchildren. It will not apply if property is left to other family members, for example nieces or nephews. The residence nil-rate band will only apply to one home which you lived in it at some stage, and the amount of the relief which you can claim cannot be greater than the equity you had in that property. If you own more than one home, the executor of your estate can nominate which home should be used when claiming the residence nil-rate-band. The residence nil-rate band is complicated, with measures designed to protect those who trade down or sell up altogether. Be warned though: falling foul of the various twists and turns when tax planning or administering an estate could cost your beneficiaries dear. At Leeds Days we can steer you through these pitfalls. In light of this the residence nil-rate band relief many traditional estate planning arrangements will no longer work and should be revisited. A good place to start is to make sure that your will is up to date. Reviewing your will periodically ensures your will remains tax efficient and in accordance with your wishes. If you are an executor it is important that you seek expert advice to ensure that you have claimed all of the potential reliefs available to the estate you are administrating and that you are not paying inheritance tax unnecessarily.

We offer a personal and friendly approach, to assist you in planning and managing your affairs most effectively in a wide range of situations. If you need any advice please contact Leeds Day on 0844 567 2222 or email wills@leedsday.co.uk

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