All change for tax and wills

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By James Skellorn

We are always being told by the professionals to review our Wills. However, recent and proposed changes in the law relating to pensions and inheritance tax are so dramatic it is vital to review how the new rules will work for each of us. Personal pension policies and their predecessors were designed for another age when the pension fund turned into an annuity on your retirement and on your death the annuity disappeared in a puff of smoke.

The new regime is that your pension policies and your SIPP have become a tax free investment fund exempt from inheritance tax which is a prime asset to pass on to your children free of inheritance tax. Ironically these hugely valuable assets will in general not pass under the terms of your Will. Instead they will pass under the terms of a nomination. You need to get this right to take full advantage of the tax exemptions. In particular the treatment up to the age of 75 and after the age of 75 needs to be considered carefully and often the nominations need to be revised at 75.

The other big change for inheritance tax is the introduction of the Residence Nil Rate Band (RNRB) from 6th April 2017. The RNRB is additional to the ordinary nil rate band each individual has of £325,000. We have all got used to the idea that the nil rate band is transferrable to the estate of the second to die of a married couple, so that potentially the second to die of a couple has a nil rate band of £650,000. The RNRB is initially £100,000 per person. It is similarly transferrable between the estates of married couples.

Provided at least one of the couple survives until 6th April 2017 his or her estate will potentially have a further £200,000 exemption from inheritance tax. By the time the RNRB is fully in force it will be £175,000 for each individual, so an extra £350,000 allowance between a married couple.

It is therefore quite possible after April 2020 for the second to die of a married couple to have a nil rate band of £1 million. (Does that ring a bell?) The rules are very complicated. How do you make sure the maximum allowance is transferred to the estate of the second to die? What if you sell your house before you die? Who are your ‘direct descendants’ for this allowance? You need expert guidance to make sure your estate will benefit properly from this generous new tax break.

James Skellorn is Senior Partner and Head of the Private Client team at Barker Gotelee, Suffolk solicitors

If you would like advice, get in touch with our experienced and friendly team on 01473 611211 or email