The introduction of the Main Residence Nil Rate Band (RNRB) may have a substantial impact on Inheritance Tax Planning and how farmers pass on their assets, possibly tax-free.
The new allowance is due to be introduce by April 2017 at an initial threshold of £100,000 which will rise to £175,000 by April 2020. This threshold is per individual and it will also be possible to transfer the allowance between married couples and civil partners.
The RNRB is in addition to the existing Nil Rate Band of £325,000 which is the current allowance available on the estate of each individual, the main difference being that the RNRB is tied in to residential property.
The RNRB allows complete relief from Inheritance Tax up to the threshold on a house lived in by the deceased at any time, provided that the house is given to a direct descendant such as a child, grandchild etc. or a spouse, and that the net value of the estate at the date of death is £2m or lower.
With timely Inheritance Tax Planning, this new band could offer more flexible relief for those wishing to take a step back from active farming and where other avenues of tax relief, such as Agricultural Property Relief and Business Property Relief, have more restrictions or may not apply.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.
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