Professionals from a Finchley-based accountancy firm are urging people not to become complacent over Inheritance Tax (IHT) planning, as the tax-free threshold for certain estates rises this month.
Specialists at Richard Anthony Chartered Accountants issued the warning to coincide with an increase in the Residence Nil-Rate Band (RNRB) earlier this month from £100,000 to £125,000.
The RNRB entitles those passing on a main residence to direct descendants to an additional tax-free amount over and above the basic threshold of £325,000, before IHT is due.
This means that individuals can pass on a total of £450,000 and married or civil partnered couples can pass on £900,000 before IHT is due.
Next year, the RNRB will increase to £150,000, allowing individuals to pass on £475,000 before tax is due and couples to pass on £950,000. In 2020, it will increase to £175,000, allowing individuals to pass on £500,000 and couples to pass on £1 million before tax is due on their estate.
The RNRB is gradually tapered off for estates worth more than £2 million at a rate of £1 for every £2 over this amount, meaning an estate worth £2.25 million or more this year would not benefit.
Bill Singh, Tax Partner at Richard Anthony Chartered Accountants, said: “With headlines highlighting that it will soon be possible for a couple to pass on £1 million before incurring IHT, it could be tempting for people to think that tax planning is no longer necessary.
“However, despite the headlines, it is important that people do not become complacent about IHT planning, as the rules are fiendishly complex and the full benefits of the RNRB can only be realised in certain circumstances.
“For instance, people may need to reconsider which assets they wish to pass to whom in order to do so most tax-efficiently, given that only certain individuals can benefit from the bequest of the main residence in order for RNRB to apply.
“They also need to be conscious that the main residence may need to be sold in order to pay any IHT liability that is incurred over and above the thresholds, further complicating the task of distributing the estate in accordance with their wishes.”
He added: “In circumstances where a main residence is held in trust or is to be bequeathed to a trust, the need for planning is particularly acute, as qualification for the RNRB will depend on the types of trust involved.
“Failing to take the RNRB into account in IHT planning could increase the IHT bill on an individual’s estate by thousands of pounds, so it is important that people whose estates may be affected seek specialist advice as soon as possible.”