One of the more welcoming announcements in the summer budget was the introduction of a new nil-rate band for inheritance tax on residential property. The relief will apply to family homes and will potentially increase the tax free element to £1 million.
How will it work?
In addition to the £325,000 nil rate band already available (the amount an individual can receive tax free) there will be an additional nil-rate band where a family home is passed on to the surviving children. This band will begin at £100,000 for the tax year 2017/2018 and increase gradually until 2020 to £175,000. However, the band will be scaled down where the value of an estate exceeds £2 million.
Where an estate consists of more than one property, there is flexibility to nominate the property that the additional band will apply to (provided the nominated property has been the residence of the deceased at some point).
Both nil-rate bands can be transferred between spouses, giving a potential relief of £1 million by 2020.
When will it be introduced?
Once the Finance Bill is passed, the measure will take effect from 6 April 2017.