Many people are left confused by the thought of Inheritance Tax, and rightly so. With as many rules as reliefs, Inheritance Tax legislation is notoriously hard to navigate.
In this blog, therefore, we are going to explore just one aspect of Inheritance Tax – the residence nil-rate band (RNRB) – and more specifically, if it can be used to pass down property to grandchildren tax-free.
The simple answer is yes, it can. But first, we need to understand how Inheritance Tax works.
When someone passes away, Inheritance Tax (also known as IHT) is charged at 40 per cent on the value of their estate which exceeds the IHT threshold – currently, £325,000, or £650,000 when combined with that of a spouse or civil partner.
In the case of spouses or civil partners, if one dies leaving their estate to the survivor of them both, then the survivor will also inherit the IHT threshold, thereby in effect doubling the survivor’s threshold.
If the estate includes a residence or former residence, then it may also be possible to benefit from the residence nil-rate band. This increases the tax-free threshold by £175,000 (or £350,000 when combined with a spouse or civil partner) but only if the residence is left to a direct descendent, broadly defined as your children (including adopted, foster or stepchildren) or grandchildren.
It follows therefore that depending on personal circumstances, to leave £500,000 and up to £1m to grandchildren without an IHT bill.
So, when passing down your estate to grandchildren, it is only the part of the estate which exceeds the Inheritance Tax threshold – and the residence nil-rate band if passing down your home – that is charged. It is possible depending on the circumstances that this threshold might be anything from £325,000 to £1m.
Get advice today
For help and advice with related matters, please get in touch with our later life planning team today.
Mander Hadley Solicitors is not only a long established firm, but is vibrant and successful, with a forward thinking approach.
Latest posts by Mander Hadley (see all)