One in 10 over 55s might be forfeiting their opportunity to benefit from the recently introduced residence nil-rate band.
According to research from LV= Legal Services, over 1.7 million people aged over 55 are leaving their family home to a sibling rather than a direct descendant, meaning they will not qualify for the extended allowance.
At present, where a married couple leaves their estate to a sibling, the inheritance tax threshold is £650,000. Anything above this amount would be taxed at 40%.
Earlier this month, however, the new residence nil-rate band (RNRB) was introduced. This meant that the allowance for the family home per person grew by an initial £100,000. Each year, until 2020/21, this will grow by a further £25,000 to reach £175,000.
In total, therefore, a couple with a residential home will be able to leave an estate worth up to £1 million without it incurring any inheritance tax. However, the extended allowance is only applied where the home is passed to a child or other direct descendant.
According to LV’s research, almost three-quarters of those asked (72%) were unaware of or did not understand what the changes meant. Of those who did, 53% did not know that the extended allowance can be applied to cash proceeds of a home sale, should they need to go into care or downsize.
Commenting on the research was Martin Milliner. The Director at LV= Legal Services highlighted the benefits that the RNRB offers and stressed the need for people to write a will in order to qualify for these benefits.
“This increased IHT allowance is a boost to those who’ve seen their homes rise in value and want to be able to pass on this wealth without sharp tax charges, but it’s crucial that they don’t fall prey to the sibling trap. Getting the right legal advice and amending your Will could take a few hours, but with potential to save a lot of money it’s time well spent.”
