Make sure your beneficiaries don’t miss out under new rules affecting inheritance tax
It's always important to regularly review and update any Will - and never more so than now because not doing so might mean missing out on new tax allowances which could save families thousands of pounds in death duties.
The new "resident nil-rate tax band" or family home allowance, which came into force at the beginning of April, means each individual can claim an additional allowance of £100,000 to offset the sale of a family home on death, on top of their existing £325,000 inheritance tax exemption.
The new allowances will rise to £175,000 by 2020 allowing a couple to pass on £1m estates tax free.
But crucially, discretionary trusts - taken out by thousands of people as a way of limiting inheritance tax liabilities - are explicitly excluded meaning that unless these trust arrangements are reviewed and altered, the benefit of the expanded allowances could be lost.
How the new rules work
The new allowance is only granted when a property is inherited by direct descendants including children, step children, adopted and foster children and grandchildren. It doesn't apply, for example, when left to nieces, nephews, brothers or sisters.
Discretionary trusts are excluded because here the assets are technically owned by the trust, and controlled by the trustees, not the beneficiaries.
Consequently, Wills should be revisited urgently as beneficiaries of a Will only have two years from the death of their first parent to alter or disband the trust, using something called a deed of appointment, to make sure they can then make use of the family home allowance.
If this isn't done within the two year window, the original Will is adhered to and the allowance could be lost for ever.
For more information on the new residence nil rate band and to review trust arrangements in your Will, or the Will of a deceased spouse or parent, please contact solicitor associate, Mary Harty, in Wards Solicitors' Wills, Probate and Mental Capacity team. Mary specialises in the creation and administration of trusts and has been a full member of Solicitors for the Elderly since 2002 and of the Society of Trust and Estate Practitioners since 2003.