Inheritance Tax and the One Million Pound Question

Posted 31 March 2016 by Richard Tinkler

There has been some rumour about being able to die and pass on £1m worth of assets inheritance tax (‘IHT’) free, known as the ‘£1m nil rate band’. I’d like to tell you a little bit about what needs to be in place for one to be eligible to pass on £1m worth of assets IHT-free on death. It’s not something that will be available to everyone’s estate so let’s take a closer look.

We each have an IHT nil rate band of £325,000 (this is subject to things like certain lifetime gifts) but anyway, we’ll use it here as our starting point. For somebody married or in a civil partnership, you can pass everything to your spouse or civil partner IHT-free. This means that, on the second death, the second spouse/civil partner can give away £650,000 because their late spouse or civil partner’s nil rate band was unused. The nil rate band on the second death is said to be ‘doubled up’. (This is, of course, subject to fulfilling certain criteria but we will keep things straightforward for purposes of this article.)

So where does £1m come from? Well, from the tax year starting 2017 onwards, one will be able to give away to descendants a residence up to a limit of £100,000 inheritance tax-free, rising to £175,000 from the start of the 2020/21 tax year. So, if someone dies unmarried in, say, May 2017, with cash and investments worth £325,000 and a residence worth £100,000, then there will be no inheritance tax to pay if the property passes to descendants.

For couples who are married or in a civil partnership, however, the unused residency-based nil rate band can be ‘doubled up’, too. So, by the tax year 2020/21, by the time the residence nil rate band is £175,000, this can be doubled up to £350,000 for the person who dies second, and, added to the £650,000 double nil rate band already in place, this produces the £1m figure.

The application is very strict – there are a great number of conditions to fulfil to obtain the extra nil rate band concerning residence. Naming them all here would be too exhaustive for purposes of this article so you must always take professional advice to know what is available. But one key criteria is that a residence (which must meet certain criteria in itself) must be passed to descendants (who are strictly defined). And remember, the £1m limit won’t be available until April 2020 onwards.

However, I want to highlight that from 2017, additional inheritance tax limits will be available for some people. Don’t forget the doubling up only applies to couples married or in a civil partnership so if you are cohabiting (even if you have a will), there won’t be a £650,000 nil rate band on the second death, let alone £1m. This article is very much an overview and there are lots of conditions to fulfil to benefit from the £1m limit from the 2020/21 tax year so do consider taking professional advice from a solicitor.

This article aims to supply general information but it is not intended to constitute advice. Every effort is made to ensure that any law referred to is correct at the date of publication and to avoid any statement which may mislead. However, no duty of care is assumed to any person and no liability is accepted for any omission or inaccuracy. Always seek specific advice.

Capron & Helliwell Solicitors offer a range of legal services at the firm’s Stalham and Wroxham offices near North Walsham and Norwich in Norfolk. The firm specialises in areas including family law, conveyancing and private client law including wills and probate. Capron & Helliwell Solicitors offer free family law clinics – please call 01692 581231 for further details or to make an appointment.

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