The latest research from the National Association of Estate Agents has forecast that the average UK property price will hit £419,000 by 2025 – meaning that more and more Britons are likely to find themselves facing Inheritance Tax (IHT) bills in later life.
Under existing rules, IHT does not need to be paid on the first £325,000 of an individual’s estate.
Once this IHT threshold or ‘nil rate band’ has been exceeded, however, IHT is payable on any property and financial gifts passed down to beneficiaries at a rate of 40 per cent.
But since April this year, individuals are able to effectively pass on an additional £100,000 tax-free in instances where they decide to leave their home to a direct descendent. This is known as the new additional residence nil rate band (RNRB).
This £100,000 is due to increase by £25,000 each year until it finally reaches £175,000 in 2020 – by which point couples will be able to leave £1m worth of property to direct descendants or other ‘qualifying beneficiaries’ tax-free.
Other ‘qualifying beneficiaries’ can potentially include stepchildren or foster children.
However, the new legislation is complex and confusing – and various steps must be taken if you wish to benefit from the RNRB.
First and foremost, it is important to seek specialist legal advice to review your Will and make the necessary provisions. An expert solicitor can help you to review your existing situation and tailor your Will to suit your unique circumstances.
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