From 6th April 2017 the new residence nil rate band relief has been phased in slowly over a four year period, as follows:-
£100,000 tax year 2017/18
£125,000 tax year 2018/19
£150,000 tax year 2019/20
£175,000 tax year 2020/21
This is in addition to the existing inheritance tax nil rate band of £325,000 per individual that already exists. So, in simple terms, if you leave your home to your child or grandchild you may be able to pass an estate worth £425,000, free of inheritance tax, should you die in the current tax year 2017/18 (assuming the net value of your home is valued at more than £100,000). However, many situations are not that clear cut and specific advice should always be sought.
The residence nil rate band relief is more restrictive than the existing nil rate band, as it only applies to gifts on death to lineal descendants, so children and grandchildren. It doesn’t benefit everyone!
If you downsize by selling your house after 8 July 2015, you may still benefit from the relief, but you may want to seek advice to ensure that you maximise the relief and do not fall foul of the legislation detail.
Many Wills use Trusts, where assets are left to children and these may hinder the use of the residence nil rate band. Wills should always be reviewed regularly to ensure they still achieve the desired outcome.
If your estate is valued at £2m or greater, the residence nil rate band is reduced and you should seek further advice.