Charlotte Searle
In the Spring 2021 budget, the Chancellor confirmed that the inheritance tax nil rate band and residence nil rate band will be frozen until April 2026. The nil rate band is the inheritance tax allowance which applies to each individual, currently set at £325,000. The residence nil rate band is an additional allowance available where residential property is left to direct descendants, currently set at £175,000.
The freeze on the nil rate band means that by 2026 the general inheritance tax allowance for individuals will have remained at the same value for 17 years (the last increase was in 2009). In the context of rising housing prices, it is easy to see why this freeze has given rise to an argument that the Government is increasing taxation by stealth. Between now and 2026 it is anticipated that these freezing measures will have achieved a 30% rise in inheritance tax.
The introduction of the residence nil rate band in 2015 did increase the tax-free allowance available to individuals leaving residential property to direct descendants, but that relief only applies if strict criteria are met and the relief is reduced if an estate exceeds £2million in value. The residence nil rate band is also irrelevant to individuals who do not have children (or who choose not to leave their property to children). If house prices continue to rise as they have done historically, more estates will start to lose this relief due to property prices taking estates beyond the £2million limit.
Fortunately, expert tax planning advice implemented in a well drafted Will can mitigate inheritance tax for many estates, especially for spouses and/or civil partners. For example, using a trust to shelter assets when the first spouse/partner dies can potentially reduce the taxable value of the estate of the surviving spouse/partner whilst also protecting those assets against threats arising from a change of lifetime circumstances for the surviving spouse, such as care home fees and subsequent marriages.
However, although tax planning can be a critical part of a well-prepared Will, it is not the only consideration. For some couples, control and autonomy over assets for the surviving spouse/partner is a more important factor than the possibility of saving tax. When making a Will it is therefore important to weigh up all the relevant factors. We each have different circumstances and varied views on inheritance, so the terms of a Will suitable for one individual might not be appropriate for another individual.
At Neale Turk LLP we have the expertise to draft bespoke Wills tailored to meet your individual needs, whilst offering a transparent pricing structure which is published on our website. Charlotte Searle is the head of our Private Client practice, with over 15 years’ experience as a solicitor and a fully qualified member of the Society of Trust and Estate Practitioners (STEP) the Association of Contentious Trust and Probate Specialists (ACTAPS) and Solicitors for the Elderly (SFE). Charlotte is also recognised in the Legal 500 national directory of leading lawyers. If you need legal advice, give us a call, send us an email or visit our website. We are proud to have been providing friendly, expert legal advice to local residents for over 60 years.