Moore Blatch is warning that hundreds of thousands of people will need to review their wills to potentially benefit from the new £1 million inheritance tax (IHT) allowance for the family home, effective from April this year.
From April 6 people might be able to benefit from an additional tax free allowance when a residence is passed on death to a direct descendant (residence nil-rate band). The additional allowance will start at £100,000 in April 2017 and increase by £25,000 annually thereafter until 2020 when it will be up to £175,000 per person.
Moore Blatch warns, however, that hundreds of thousands of wills may need reviewing as they will include historic IHT management measures including the use of Nil Rate Band Discretionary trusts in their wills. These were very common for people who exceeded the original Nil Rate Band limit in 2007.
In addition, couples who have left their estates to a Discretionary Trust on the second death ought to review their wills. This provision is often included to protect assets for the children against divorce, bankruptcy, spend-thriftiness or some sort of disability, but now if the money goes to a Discretionary Trust then the new residence Nil Rate Band can’t be used.
The new IHT benefit tapers off for those with estates valued at over £2m. There are also complex rules for anyone who has sold their main residence after 8 July 2015, downsized or even moved to a nursing home. Therefore, anyone who is caught by any of these scenarios should also review their will.
Carla Brown, Partner, Moore Blatch solicitors says: “We hold the wills of over thirty five thousand individuals and estimate at least half should be reviewed. As a similar situation will apply to most law firms, literally hundreds of thousands of wills could be affected. While on the face of it the new allowances are very good news, the devil is in the detail and the detail involves complex calculations as to how best to protect your assets. The new IHT allowances mean that previously prudent IHT planning measures such as establishing a Discretionary Trust will need to be carefully considered and may now need changing.”
