An increase in UK house prices combined with the freezing of the nil-rate band at £325,000 is leading to more families paying Inheritance Tax on the death of a relative.
A report by the Office for Budget Responsibility has revealed that in 2009/10 only 2.6% of deaths generated an Inheritance Tax liability. This figure has risen to 7.1% in 2015/16 and is predicted to reach 8% in 2016/17.
With the gradual introduction of the new residence nil rate band, there is expected to be an initial reduction in the number of estates subject to inheritance tax. However, it is anticipated that this reducing effect will only be temporary as house prices continue to rise.
Whilst reducing the number of estates subject to Inheritance Tax, the new residence nil rate band is not expected to reduce the overall Inheritance Tax yield which is expected to grow from £4.4billion in 2015/16 to £5.6billion by 2020/21. This is largely because the majority of Inheritance Tax is received from estate worth over £1 million.
Effective Inheritance Tax planning with residential property is notoriously difficult and complex. The new residence nil rate band also has strict conditions and circumstances in which it will apply and it can be easy to fall foul of the provisions and lose the intended benefit. It is therefore essential for anyone considering Inheritance Tax planning involving utilising the new residence nil rate band to seek professional legal advice.
If you would like advice on estate planning or inheritance tax issues please contact us.