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Does this affect you? Nil rate band to rise again

HMRC is on course to collect more than £5.5 billion in inheritance tax receipts when the curtain comes down on 2018/19.  The Office for Budget Responsibility (OBR) anticipates an increase of £300 million on the previous year's inheritance tax receipts total of £5.2bn when the current tax year ends on 5 April 2019.

Receipts have been steadily rising over the past nine years, with soaring property prices dragging more estates into the inheritance tax net, despite Brexit.

Afford Bond's Tax Director, Chris Regnauld said: "You have to pay Inheritance tax at 40% if your estate is worth more than £325,000, although the levy is only deducted on the value of the estate that exceeds this.  So, for example, if your estate is worth £500,000 and your basic nil-rate band is £325,000, inheritance tax will be charged at 40% of the excess - £175,000 - before what's left goes to your beneficiaries."

In this specific example, £70,000 in inheritance tax would go to the Treasury before the remainder - £105,000 - goes to the people or charities that mean something to you.

Two years ago, amid a background of rising property prices, the Government introduced an extra allowance of £100,000 per person for family homes passed to children or grandchildren. This residence nil-rate band, or family home allowance as it is otherwise known, works on top of the £325,000 threshold and can be combined with your spouse or civil partner's allowance.


Introduced on 6 April 2017, the residence nil-rate band enables you to pass on your family home and potentially save on death duties. It introduced an extra £100,000 inheritance tax allowance when passing on the family home to your children or grandchildren, and this additional threshold increased to £125,000 on 6 April 2018.  This gives you a tax-free total of £450,000 in 2018/19, with inheritance tax charged at 40% on the portion of estates exceeding this.

Spouses and civil partners can also transfer the basic nil-rate band and the residence nil-rate band on death, making it possible for couples to pass on a family home worth up to £900,000 in 2018/19.


Your estate will qualify for the residence nil-rate band if you owned a home and it is included in your estate and left to children or grandchildren when you die.  Stepchildren, foster children, adopted children and lineal descendants can also benefit from the family home allowance.


For the second successive year since its introduction in April 2017, the residence nil-rate band will increase by £25,000 - from £125,000 to £150,000 per person - on 6 April 2019. This makes it possible for spouses or civil partners to bequeath a family home worth up to £950,000 in 2019/20.

The final increase of £25,000 - from £150,000 to £175,000 per person - remains on course to be introduced in April 2020, enabling couples to pass on a home worth £1m without incurring tax. The basic nil-rate band remains unchanged at £325,000 for 2019/20, although a wider reform of inheritance tax has been mooted by the Office for Tax Simplification.


If you have a large estate, the amount you can pass on tax-free gradually reduces through a process known as tapering. The residence nil-rate band reduces by £1 for every £2 your estate is worth more than £2m, so you will lose your entire family home allowance if your estate exceeds £2.25m in 2018/19.

"It can be a very complicated area," said Chris Regnauld. "From 6 April 2019, your entire residence nil-rate band will be lost if your estate is worth more than £2.3m. It's wise to speak to an expereinced tax advisor sooner rather than later because with careful planning, there are many helpful steps which can be taken to protect your estate for your family.  I can be reached at if you would like an informal chat about your tax position."