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Main Residence Additional Inheritance Tax Threshold

5 May

This tax information and impact note affects individuals with direct descendants and personal representatives of deceased persons with total assets above the Inheritance Tax threshold.

George Osborne revealed in July 2015’s Summer Budget that he’d scrap the duty when parents or grandparents pass on a home that is worth up to £1m (£500,000 for singles). This will be phased in gradually between 2017 and 2020.



In recent years, property prices have risen far more quickly than the Inheritance Tax (IHT) nil-rate band. As a result the number of estates subject to IHT has been increasing rapidly.

This is contrary to the aim of the current government that only the wealthiest estates should be subject to IHT. The measures announced in the Summer Budget were widely publicised beforehand and formed part of the Conservative Party manifesto.

It was commonly reported that the new measure would give an effective IHT allowance of £1 million, although we can see that the full allowance of £1 million is not scheduled to come into force until 2020/21.

Policy Objective
This measure will reduce the burden of IHT for most families by making it easier to pass on the family home to direct descendants without a tax charge.


Background to the Measure
The measure was announced at Summer Budget 2015.


Operative Date
The measure will take effect for relevant transfers on death on or after 6 April 2017. It will apply to reduce the tax payable by an estate on death; it will not apply to reduce the tax payable on lifetime transfers that are chargeable as a result of death.

The main residence nil-rate band will be transferable where the second spouse or civil partner of a couple dies on or after 6 April 2017 irrespective of when the first of the couple died.


Current Law
Section 7 of the Inheritance Tax Act 1984 (IHTA) provides for the rates of IHT to be as set out in the table in Schedule 1 to that Act. The current table provides that the nil-rate band is £325,000.

IHT is charged at a rate of 40% on the chargeable value of an estate, above the nil-rate band, after taking into account the value of any chargeable lifetime transfers. The chargeable value is the value after deducting any liabilities, reliefs and exemptions that apply.

Where an estate qualifies for spouse or civil partner exemption, the unused proportion of the nil-rate band when the first of the couple dies can be transferred to the estate of the surviving spouse or civil partner, sections 8A-C IHTA. The nil-rate band can be transferred when the surviving spouse or civil partner dies on or after 9 October 2007, irrespective of when the first of the couple died, so that the nil-rate band can be up to £650,000. There is currently no specific exemption for a residence, or for assets being transferred to children and other direct descendants.

Section 8(3) to Finance Act 2010 provides for the nil-rate band to be frozen at £325,000 up to and including 2014 to 2015. Section 117 and paragraph 2 of Schedule 25 to Finance Act 2014 extends the freeze on the nil-rate band until the end of 2017 to 2018.




How This Works in Practice

  • The current allowance whereby no inheritance tax is charged is on the first £325,000 (per person) of someone’s estate – which is the value of their total assets they leave behind when they die. This remains unchanged. Above the threshold, the charge is 40%.
  • A new tax-free ‘main residence’ band will be introduced from 2017, but it is only valid on a main residence and where the recipient of a home is a direct descendant (classed as children, step-children and grandchildren). It is being phased in gradually, starting at £100,000 from April 2017, rising by £25,000 each year till it reaches £175,000 in 2020.
  • So in 2017 the maximum that can be passed on tax-free is £850,000 for married couples or those in a civil partnership, £425,000 for others. For singles, this is made up of the existing £325,000, plus the extra £100,000. For couples, when the first one dies their allowance is passed to the survivor, so that £425,000 is doubled to £850,000.
  • In 2020, the tax-free amount will rise to £1m for couples, £500,000 for singles, as the main residence allowance rises.
  • Currently, without the ‘main residence’ additional allowance, couples can leave a home worth £650,000 without it attracting inheritance tax (singles £325,000).
  • On properties worth £2 million or more, homeowners will lose £1 of the ‘main residence’ allowance for every £2 of value above £2m. So for a couple, properties worth £2,350,000 or more will get no additional allowance.

2. It can be offset against the value of the owner’s interest in a property, which, at some point, has been occupied by the owner as a residence. It will be available when an owner dies on or after 6 April 2017 and their interest in it is transferred to direct descendants.

3. The transfer must be on death and can be made by will, under intestacy or as a result of the rule of survivorship.

4. In general, the transfer must be outright but certain other transfers into trust on death are permitted: for example, bare trusts, IPDI trusts, and 18-to-25 trusts and trusts for bereaved minors.

5. Special rules will be introduced to protect those who downsize. How this will work is currently subject to consultation.

6. Where the value of the deceased’s estate exceeds £2m (after deducting liabilities but before reliefs and exemptions) the RNRB will be reduced by £1 for every £2 excess value. It is important not to underestimate the “before reliefs” part of this condition. It means you ignore business property relief and agricultural property relief, for example, which could make quite a difference.

7. The £2m threshold and the RNRB are due to increase in line with the CPI from 6 April 2021.

8. Where death occurs after 5 April 2017, the deceased’s RNRB will be set off against any chargeable transfers of a residence before the set off against the standard nil rate band.

9. Any RNRB that is not used on first death can be transferred to a surviving spouse or civil partner. This is the case regardless of whether the deceased could have used their RNRB or not. The amount unused will be applied to uplift the survivor’s RNRB entitlement on second death


What If I Downsize?

There are measures in place to make sure the new proposals do not discourage individuals from downsizing. These measures will only apply to someone who ceases to own their main residence on or after 8 July 2015.

Initially it looks like this would only apply in a very limited number of circumstances. The example given in the Treasury policy paper is that if someone downsized from a house worth £200,000 to a home worth £100,000 they could still benefit from the maximum allowance of £175,000 in 2020/21 if they leave the home and £75,000 of other assets to direct descendants.

Where we could see the rules having more practical relevance is where someone has sold their main residence and moved into a nursing home. In these circumstances, they would be able to leave assets worth up to £175,000 (by 2020/21) to a direct descendant.


Who is likely to be affected
Individuals with direct descendants who have an estate (including a main residence) with total assets above the Inheritance Tax (IHT) threshold (or nil-rate band) of £325,000 and personal representatives of deceased persons.


General description of the measure
This measure introduces an additional nil-rate band when a residence is passed on death to a direct descendant.

This will be:

  • £100,000 in 2017 to 2018
  • £125,000 in 2018 to 2019
  • £150,000 in 2019 to 2020
  • £175,000 in 2020 to 2021

It will then increase in line with Consumer Prices Index (CPI) from 2021 to 2022 onwards.

Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner.

The additional nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.

There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

The existing nil-rate band will remain at £325,000 from 2018 to 2019 until the end of 2020 to 2021.




Husband dies in 2020/21 and leaves his share in the residence, valued at £87,500, to his children; balance of his estate to his wife

  • £87,500 of £175,000 RNRB (Residential Nil Rate Band) set off against transfer
  • Extra 50 per cent RNRB to widow for possible set off on her subsequent death
  • Full standard NRB and transferable standard NRB also available
  • Where the first death occurrs before 6 April 2017, both the amount available for carry forward and the RNRB at the time of first death are deemed to be £100,000, thereby ensuring that, in these circumstances, the residence nil-rate band is always increased by 100 per cent on second death unless the estate of the first to die exceeded the taper threshold.
  • This is the case regardless of whether or not the estate of the first to die included a qualifying residential interest and irrespective of what dispositions occurred on their death.


Example 2.

When the first to die dies with an estate of more than £2m, entitlement to the RNRB is tapered away at the rate of £1 for every £2 of excess value. This applies on the first or second death and regardless of when the first death occurred.

Husband dies in 2021/22 with an estate valued at £2.2m

  • Husband leaves the whole estate (including an interest in the main residence) to his wife
  • RNRB on first death is reduced by £100,000 (4/7) or 57.2 per cent
  • Transferable RNRB is 42.8 per cent
  • On the subsequent death of the widow, if she dies with an estate of £1.5m, she can use all of the standard NRB, 100 per cent transferable NRB, full RNRB and 42.8 per cent transferable RNRB
  • If both deaths occur before 6 April 2017, no RNRB is available to offset against the deceased’s estate.
  • If first death occurs before 6 April 2017, the RNRB is available for transfer if the subsequent death occurs after 5 April 2017.

So, quite a lot more to it than first meets the eye – and these are just the fundamentals.


Should I Plan / Should I Take Professional Advice?

There is quite a lot more to this change in legislation than first meets the eye – and these are just the fundamentals detailed above.

There are a few basics you should think about:

  • It’s crucial to make a will
  • Take professional tax advice


Oh and finally, inheritance tax planning is important, but don’t forget, the main thing is that you (or your parents) should have financial security in old age. Don’t sacrifice everything just to plan for someone else’s future. You’ve earned your money, so let it make you comfortable.

Investment Bulletin – October 2015

12 Nov

2015 has been a poor investment period so far, seeing the most significant losses since 2011. The question I’m asking – are we about to see a similar outcome to 2011 with the investment markets rallying and posting significant returns? The answer I have is “maybe” – no one knows but what is clear is the markets have been in the grip of panic, leading in my opinion to being oversold. I believe that this will offer opportunities in certain investment markets for the future.


In recent years, the investment markets have been “trading in a range” and this has seen a fall from the top of the range. So, if the markets follow a similar model this could realistically lead to positive returns.


It has been our strategy to position your portfolio, within your risk profile, with the focus of relative capital preservation and real total returns. Relative to the market situation, we have performed above expectations and produced pleasing returns.


Our portfolios are well diversified and where relevant, we have already made recommendations leading to changes in the asset allocation and some of the fund selections.



Market Overview

It has been impossible to ignore the recent dramatic sell-off in the Chinese markets and the subsequent falls in other equity markets around the world. Despite the opening up of the Chinese economy its impact on the developed world is fairly limited as regards first round effects, with exports of goods and services to and from China a very small part of GDP (Gross Domestic Product) for all mainstream economies.




I think it is economies that kill markets not the other way around so I believe the current decline is overstated.


On a more positive note, lower commodity prices are, of course, producing a significant boost to the western consumer and we are seeing an acceleration in consumer spending across the US, Europe and the UK in 2015. Inflationary pressures are also likely to remain muted for longer and interest rate increases which, until recently, seemed almost a certainty over the coming months could well be pushed back. The US rate increase heavily tipped for December.


It is also worth noting that although we have seen sharp falls in equity prices, the moves in bonds have been much less pronounced.


Whilst we shouldn’t be complacent, bearing in mind that equity markets can often be a good signal of trouble ahead, I think weakness in China is not sufficient to bring down the global economy. We maintain a modest preference for equity markets but do expect volatility to remain. I am inclined to think the recent drama has been a bit of an over-reaction and is unlikely to have a significant impact in a raw economic sense.




We are expecting the prospect of the first interest rate rise since June 2006 and we await the December Federal Reserve meeting. The Fed’s actions in the coming three-to-six months could have wide-reaching implications for the global economy. We expect that if (and based on the Federal Reserve’s commentary and dialog, a rate rise is imminent), this will be closely followed by the Bank of England to raise rates. In both cases, we are expecting small incremental steps based on the strength of the economies. So do not expect large or quickly followed further increases. The expectation is this will not lead to a rise in bank interest rates paid to the consumer, as banks based on recent results and the multitude of fines and legacy problems are not anticipating paying a higher base to account holders.


We do expect more volatility but anticipate buoyant equity markets in the near future but with clear risks in several sectors, themes and geographies.


Therefore, we reaffirm our focus on valuation discipline and total return strategies, where care and attention is and will always be needed. This focus has allowed us to achieve above average returns in less than average markets over a longer term, always with a clear relative focus on capital preservation, targeted returns and risk profile.


This bulletin provides information, it is not advice. Any opinions are given in good faith and may be subject to change without notice. Opinions and information included within this document does not constitute advice.

(If you require personal advice based on your circumstances, please contact me.)

Launch of Waverley Court Consulting Ltd – Website

18 Dec

I am pleased to announce the launch of my website –

After much work, reviews, re-writing and editing my website is now live. Let me know your thoughts on the content, design and presentation. Personally, I am most pleased with the Testimonials sections – every one who kindly provided their comments presented their views of our relationship.

ECJ Judgement and the effect on Discounted Gift Trusts

26 Nov

This article summaries the judgement provided by the Court of Justice of the European Union (ECJ) regarding gender discrimination in relation to insurance premiums and its effect on Discounted Gift Trusts (DGT).

The Decision

On 1 March 2011 the ECJ issued a judgement that stated that the insurance services sector will no longer be able to offer gender specific premiums or benefits from 21 December 2012.

How does this impact Pensions, Annuities and Insurance?

This ruling is expected to affect these areas of financial services and following the 21 December 2012, we will see how this will be embedded into our existing legal framework and processes.

How does this impact DGT valuations?

When calculating the open market value of an income stream to arrive at a discount, HMRC guidance provides the use of certain gender specific mortality tables. HMRC have indicated they will review their guidance to take account of the judgement. However, it is likely that any change would not happen until late 2012. For DGTs declared before any change to the HMRC guidance on valuations, this judgement should have no impact, as the basis of the discount calculated will be relevant as at the date the trust is declared not the date of death of the settlor(s).
It should be remembered that the discount is just one factor in deciding whether a DGT is a suitable arrangement as part of your Inheritance Tax planning strategy.

The Rationale for the Judgement

Directive 2004/113/EC prohibits all discrimination based on gender in the access to and supply of goods and services. 

This means that from 21 December 2007 the Directive prohibited the use of gender in the calculation of insurance premiums and benefits. However, the Directive allowed exemptions to Member States regarding the use of gender specific premiums and benefits so long as the Member State ensured that the underlying actuarial and statistical data of which the calculations are based are reliable, regularly updated and available to the public.

The judgement considered if the intention of this exemption was to allow gender specific premiums and benefits to continue indefinitely. The Court concluded this was not the case and that gender specific premiums and benefits works against the achievement of the objective of equal treatment between men and women and therefore it was appropriate to bring this practice to an end.

Concluding that gender specific premiums and benefits would be regarded as invalid with effect from 21 December 2012.


My Expectations from The Budget

21 Mar

This afternoon, the Chancellor George Osborne will deliver his third Budget and I am not expecting many surprises.

Based on the leaks, per-announcements and general rhetoric, I’m expecting the following announcements:

  • Houses worth more than £2m will face a new 7% Stamp Duty Band. This is expected to generate a further £1.5 Billion in additional revenue, which is expected to go to funding a rise in the tax free income tax personal allowance.
  • The top rate of income tax will be reduced to 45% from April 2013.
  • The income tax personal allowance will increase to £9,205 in April 2013 before a further rise by April 2014 (possibly to £10,000). This would be a year earlier than previously suggested.
  • From 2014, income tax payers will be sent a detailed breakdown of the tax they pay and how the Government plans to spend the revenue.
  • The closure of loopholes allowing stamp duty to be avoided. (This was achieved by purchasing the house through an offshore company or by exploiting rules put in place to stop developers paying stamp duty twice.)
  • Changes to pension tax relief is expected. (It is expected either as a reduction in the annual allowance to below the current level of £50,000; or a reduction in the rate of tax relief higher rate tax payers can claim.)
  • It is expected that the Office for Budget Responsibility will announce an increase its forecast for growth in 2012 to 0.8%.

Seeking Advice

18 Mar

I have been asked by many, the best way to contact me if you are seeking advice?

The easiest is by the blog email :-, or my business email :- or

Or call my office :- 029 2020 1241

Or my mobile :- 07931 388651

Or to follow me  –

On twitter :- Welshmoneywiz

On Linkedin :- Darren Nathan

All the best


Long Term Care & Choosing the right Inheritance Tax Plan

29 Feb

I have recently been looking into issues around Long Term Care and Inheritance Tax Planning. Many people who were looking to manage their investments after retirement were primarily concerned with Inheritance Tax (IHT) planning. Now there is the growing further complication of funding sheltered accommodation and/or residential care, should it be needed.

The average cost of care is now around £25,000 per year, but for many the costs are much higher.

This leaves the dilemma for Inheritance Tax Planning – as it maybe necessary to set aside in excess of £200,000 to fund care they may not need. If this sum is liable to Inheritance Tax then £80,000 could be the tax liability payable.

In 2010-11, Inheritance Tax was more than £2.7bn and it’s believed perhaps half of this tax is paid needlessly due to a lack of appropriate planning.

Remember, on death, the assets of a UK-domiciled individual valued above £325,000 will be taxed at 40% on the excess (£650,000 for couples). Assets caught could be anything including assets held in trust, gifts, family home, other property holdings (UK and overseas), contents, payouts from insurance and other policies, non-qualifying business assets, lump sum pensions payments, cash, stocks, shares and other holdings including jewellery; and so on.

There is no panacea to Inheritance Tax or Care Fee Planning, but the starting point is that everyone with assets must make a Will.


Choosing the right strategy

Assuming that plans chosen are affordable, the first consideration is risk and the definition of risk.

1. Risk of Challenge by HMRC – some scheme’s are more aggressive than others, and are more at risk of challenge by HMRC. In comparison, others are tryed and tested techniques which follow an accepted approach.

2. Investment Risk – some investments are cash based and are not expected to keep up with inflation, so eroding future buying power; some investments are portfolios and so the capital value is at risk to market movements, and so maybe worth less in the future

3. Loss of direct ownership and control – some schemes involve trusts and so once assets have been assigned into trust , the assets become owned by the trust and administered by the trustees

4. Loss of control of capital and access to liquidity – some schemes, once implemented the asset cannot revert to the original owner


The Scheme Itself

1. Avoid schemes which have obvious failings. For example do not do the following :-

  • take out a loan against your home (as a mortgage or Equity Release/Home Reversion Schemes) and invest this into a suitable Inheritance Tax Planning Product

2. Exemptions. These are immediately free of Inheritance Tax and are detailed allowable exclusions to Inheritance Tax.

Examples are :-

  • Annual Exemption (you can give away gifts worth up to £3,000 in total in each tax year and can carry forward any unused part of the £3,000 exemption to the following year for one year only)
  • Wedding gifts/civil partnership ceremony gifts

    • parents can each give cash or gifts worth £5,000
    • grandparents and great grandparents can each give cash or gifts worth £2,50
    • anyone else can give cash or gifts worth £1,000
  • Small Gifts (you can make small gifts up to the value of £250 to as many individuals as you like in any one tax year)

You also can’t use your small gifts allowance together with any other exemption when giving to the same person.

  • Regular gifts or payments that are part of your normal expenditure

3.  Gifts and potentially exempt transfers.

These are simple ways of passing wealth on free of Inheritance Tax, but it must be an absolute gift absolving any future rights to this money. The Seven Year Rule applies and is subject to Taper Relief, if applicable.  

It’s common practice to set-up a seven-year term life assurance policy in trust to cover the associated Inheritance Tax liability, especially on larger gifts to mitigate the risk of the tax liability, if you were not to survive the seven years.

The above approaches require losing ownership of associated wealth. They should be used, assuming you know the money will not be needed in later life.

4. Use of Tax Reliefs. Agricultural Property Relief and Business Property Relief attracts 100% Relief to Inheritance Tax after owning the qualifying asset for two complete years. These assets are typically less liquid and carry potentially additional risks, which need to be considered.

5. Use of Trusts

Trusts can be highly complex and require professional advice. There are many options and legislation has targeted this area in recent years.

Loan Trusts allow the original investment ownership to be retained, while the beneficiary receives capital growth IHT free. There are limitations tote effectiveness of the solving of Inheritance Tax through these schemes due to the longevity of removing assets from the chargeable estate.

Normally, the donor relinquished ownership, although some trusts do allow a change of beneficiary and discounted gift trusts allow the donor to receive income.

Alternative Investment Market (AIM) shares allow retention of ownership, but few regularly pay income dividends, so most people invest for capital growth.

These are classed as higher risk as the value of many AIM shares are volatile and can fall considerably in a market downturn, and liquidity may be an issue.


These are complex issues and there are a raft of solutions with many variations. Each circumstance must be reviewed on its own merits to select the appropriate method(s) to resolve these issues.

Inheritance Tax Planning and Long Term Care Funding can be resolved on a combined approach but every circumstance will be unique because of personal circumstances, views and goals.

I would always recommend professional advice is taken.

Any questions, contact me