During the Covid-19 pandemic, much of the focus has been on shoring up existing delivery and, where possible, extending arrangements if it is not possible to re-procure.
Well, the honest answer at this stage is ‘we don’t know!'. Not altogether helpful I appreciate but, unfortunately, it is a true reflection of where we are!
The Conservative Manifesto promises to increase the Nil Rate Band (NRB) for Inheritance Tax purposes. The NRB is the amount or value in your estate that can be left to your chosen beneficiaries free of any inheritance tax. The present NRB is £325,000 and has been at this level since 2009. As house prices have gone up, more estates have fallen into the Inheritance Tax net. The headline grabbing summary from the Conservative Manifesto on this issue is ‘Nil Rate Band to increase to £1 million’ – but what is the truth?
“And we will take the family home out of tax for all but the richest by increasing the effective Inheritance Tax threshold for married couples and civil partners to £1 million, with a new transferable main residence allowance of £175,000 per person. This will be paid for by reducing the tax relief on pension contributions for people earning more than £150,000.” (Conservative Party Manifesto, 2015)
However, the way it is proposed to increase the NRB is not straightforward. The suggestion is that the ‘normal’ NRB as we know it – and the long standing value of that – will remain as at present but with the addition of a £175,000 main residence relief (or ‘Property NRB’). Whilst any increase in the NRB – and particularly an increase which recognises the increasing value of property – is to be welcomed, lots of questions arise.
As it is proposed this Property NRB is transferable, should this allowance be used on first death or deferred until the second death of a couple? On the one hand, the value of the Property NRB could be increased in the future, and as it is transferable deferring the use of this could enable more value to become tax free. However, any increase to this band will be uncertain.
What happens if there is no property in existence on second death, for example if the survivor has had to go into a care home? Will the allowance be able to be claimed against what is left of the proceeds of sale of the property? Should the Property NRB be used (or crystallised) on first death? And if so, will it be able to be used separately to the ‘normal’ NRB?
Without draft legislation or further announcements as to exactly what is planned for the property NRB and exactly how it will be available, there are no immediate answers. In addition, with the country’s deficit and deficit reduction plans still in the spotlight, the question of timing of this key pledge will be key. We could see legislation in the short-term but equally the manifesto covers pledges to be achieved by the end of this parliament so this announcement could be a long time in coming to fruition
What is clear is that the need for expert advice to ensure that your property and family circumstances are best protected will be more crucial than ever – regardless as to when this policy comes into force.
To make sure your estate is appropriately planned to make provision for those you want to and that taxes are appropriately mitigated, call one of our Personal Planning and Management Team on 0121 212 7404 to discuss how we can help you achieve the best for your family’s future.
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