Lowes Magazine Issue 121

ESTATE PLANNING

Estate planning as property prices rise

PROPERTY PRICES IN THE UK HAVE CONTINUED TO rise over the pandemic period, reaching a 15 year high in November 2021. This has been fuelled by the stamp duty holiday which ended in September 2021. Combined with the continued freezing of the inheritance tax (IHT) nil rate band, now held at £325,000 until 2026, this means more people are at risk of paying IHT on their estate in the years to come. If someone dies and their estate is worth more than the basic Inheritance Tax threshold, their beneficiaries would be liable to pay 40% tax on the value of the estate above that figure. However, their estate may qualify for the residence nil rate band (RNRB), extending the sum allowed before any Inheritance Tax is due. But the rules are far from simple. The RNRB is an additional IHT allowance, launched in 2017, designed to counter the fact that the nil rate band had not increased in line with property prices over the years. It can be claimed only when an individual dies and a direct descendant inherits the ‘home’ in accordance with a will, or under intestacy rules. Direct descendant refers to a child or grandchild of the deceased, but also includes stepchildren, adopted children and anyone married to – or in civil partnership with – this group. The full RNRB each individual can claim is £175,000. However, where a spouse or civil partner may have died earlier, any unused part of their residence nil rate band can also be used, irrespective of the date they passed, even if this was before the RNRB was introduced in April 2017. The spouse or civil partner also doesn’t need to have owned any

part of the qualifying property to claim the RNRB. The rules aren’t the same for unmarried couples, however. The unused part from a deceased unmarried partner cannot be transferred, even if the couple had children together. Also, anyone with an estate of more than £2million could lose some or all their RNRB. When this £2million threshold is exceeded, the RNRB is reduced by £1 for every £2 of value by which an estate exceeds the taper threshold. Tapering can reduce the RNRB to zero. The RNRB applies to the entire estate on death, not just the value of the home itself, so can help reduce the total IHT charge on death. When calculating IHT due on a person’s estate, the RNRB is deducted from the value of the estate on death before deducting the general nil rate band. But it cannot be applied to money given away within seven years of death. For people who may sell the family home and move into a smaller property when they retire, or who may may gift their home or sell up completely and either move in with family or into care, provided the sale or gift of the house was completed after 7 July 2015, a ‘downsizing addition’ may be available to make up for the lost RNRB. As can be seen from just this brief description of the RNRB, it is a complex area, which needs careful consideration and planning. If you would like to know more, please contact us by calling 0191 281 8811.

6 Lowes.co.uk