What is the Nil Rate Band?

Nil Rate Band

The Nil Rate Band (NRB), also known as the Inheritance Tax (IHT) threshold, is the amount up to which an Estate has no IHT to pay.

The current allowance available on the Estate of an individual is £325,000; anything above this is taxed at 40%.

The NRB applies to property passing on death together with any taxable gifts made within the seven years before death.

Example

In 2017, Dora dies leaving an estate to her son and daughter worth £325,000.

Dora has never owned a residence, as she was a tenant farmer all her life and lived in rented accommodation. IHT is payable as follows:

£
Chargeable estate 325,000
Less: nil rate band (325,000)
Balance 0
Tax at 40% 0

This threshold is per individual and it is also possible to transfer the allowance between married couples and civil partners.

The NRB is fixed at £325,000 until 2021.

From 6 April 2017, a Residence Nil Rate Band (RNRB) has also been available in addition to the NRB. To find out more about the RNRB, check out our blog ‘How Does the Residence Nil Rate Band Affect Farmers?

At Green & Co we have developed an Inheritance Tax and Estate Planning review in order to advise clients and their family fully with regard to these issues. If you would like to speak to one of our team, please feel free to contact us.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Estate Planning and Farmland

www.greenandco.com

Most land owners are aware of Agricultural Property Relief (APR) and could be forgiven for thinking that this means there is no risk of their Estate paying Inheritance Tax.

Unfortunately there are situations where farmland does not qualify for 100% APR. There have been cases where the HM Revenue & Customs have successfully challenged claims for APR and the rules are complicated.

Family farms often have the ownership spread across the family and in some cases are owned by the family company. Where land is occupied by one person but farmed by another entity, such as a company, it is easy to end up with only 50% APR. There can also be problems if the farmer leaves a spouse who lives in the house but is not part of the farming business.

It is very important to make sure that property ownership is structured correctly to minimise tax liabilities.

For further information contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.

Estate Planning and Farmhouses

www.greenandco.com

Most land owners are aware of Agricultural Property Relief (APR) and could be forgiven for thinking that this means there is no risk of their Estate paying Inheritance Tax.

Unfortunately there have been cases where the HM Revenue & Customs have successfully challenged claims for APR and the rules are complicated. This is particularly true for Farmhouses.

In order for the farmhouse to qualify for APR it has to be of a character appropriate to the farm. The farm-house must be occupied for the purposes of agriculture and preferably by the farmer of the land. APR on a farm-house may be lost if the farm-house is retained on retirement but the land is let on a Farm Business Tenancy. The farmer must continue to be actively involved in the farming business.

Problems can occur when a farmer owns a large farm with a house and on retirement gives the majority of the land away but retains the “farmhouse” and a small proportion of the land. This can mean that the farm-house is no longer character appropriate to the land retained. HM Revenue & Customs are using these arguments to curb “non-farmers” who buy “lifestyle farms” and contract out farming activities or farms where there is not a full-time farmer residing in the farm house.

It is worth noting that APR is only given on the agricultural value of the house. That is the value assuming the property could only be used for agriculture. This means that often between 15% and 30% of the value will not attract relief. The more integral the farmhouse is with the yard and other farm buildings the lower the discount will be.

For further information contact Green & Co.

Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.