With the new Residence Nil Rate Band (RNRB) coming into effect in April 2017, now is a good time to look at the inheritance tax efficiency of your will.

Since 1974, the first of a married couple to pass away has been able to leave their entire estate to their spouse without having to pay inheritance tax. The knock-on effect was that the deceased’s Nil Rate Band (NRB) allowance remained unused and as a result , in order to make inheritance tax savings on the second death, a significant number of wills were drawn up containing Nil Rate Band Discretionary Trust (NRBDT) provisions.

Since 2008, it has been possible to transfer any percentage of unused NRB to the survivor of a marriage. This effectively removes the need for “banking” the NRB through a discretionary will trust and can potentially allow the nil rate band to “double up” on the second death.

April 2017 saw the new RNRB come into force. The RNRB will allow for an additional tax-free £100,000 to apply to estates where a residential property is being passed onto one’s direct descendants (children and grandchildren). That amount will increase by £25,000 every year until 2020, when it will reach £175,000. As a result, each person will be able to pass on £500,000 tax free and potentially £1,000,000 if they are the second in a married couple to pass away. However, where an NRBDT features in a will rather than making an outright gift of a residence to direct lineal descendants, the extra RNRB allowance will be lost.

Those people whose wills were drafted pre 2008 and contain NRBDT should revisit their wills to ensure that they are not losing out on the availability of further tax exemptions.

There are, though nonetheless, benefits to holding onto the trust provisions in some cases, for example, to protect an estate from a divorce settlement. Every situation is different and the best way to ensure your will is still working for you is to seek the appropriate legal advice. For further information please contact a member of mosshaselhurst’s Private Client team on 01606 74301.