Home owners planning to take advantage of a valuable new tax break on what they leave to their children are being warned to study the rules carefully, amid the risk of losing thousands of pounds.
Leading tax and trusts lawyer Gary Priest, a partner at Midlands law firm mfg Solicitors, has flagged the issue after becoming concerned that too many people will think they are automatically better off by the changes to inheritance tax coming into force in April this year.
The change, which was an election pledge by the Conservative party, can potentially save families up to £140,000 in inheritance tax.
The tax amendment is known as the Residential Nil Rate Band (RNRB) and gives people an additional tax allowance that applies to their home. The new allowance is being introduced in April, although the full benefit will not be available until 2020/21.
However, Mr Priest says people must look carefully at their existing arrangements as certain types of wills and discretionary trusts can still incur very hefty inheritance tax.
He said: “As with all tax rules, the devil is in the detail, and we are advising people to be extremely careful with their calculations with the change only months away.
“For a start, RNRB is only available where the main residence passes to a very narrow range of beneficiaries such as to children or other descendants on death. It is also only claimable where the net estate is less than £2.2 million.
“Discretionary trusts need a lot of care to be taken. In some cases this can mean the additional tax saving is forfeit and on top of that, there are complicated rules about the RNRB for people who downsize their property and release some of the value.
“I’d advise all married couples to take advice and carefully review their wills to ensure they don’t lose out on the significant benefit this tax break offers.
“Equally, they must also be careful they aren’t stung by an unexpected or larger tax bill which can happen if they don’t fully understand the new rules.”
For further advice on inheritance tax, readers can email firstname.lastname@example.org or call 0845 55 55 11.