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How to Use New Tax Band to Gift Assets to Your Children

On 6 April 2017, a new tax exemption is being introduced which will soon allow you and your spouse to gift up to £1m to your children.

There are several tax exemptions that need to be considered including, the existing nil rate band, the new residence nil rate band and the conditions your estate must meet to qualify.

Here is a simple explanation how to use the nil rate band and the residence nil rate band in order to give as much as you can to your children tax free.

Nil Rate Band

The nil rate band is the first £325,000 of your estate. This is not subject to inheritance tax and is also known as the inheritance tax threshold.

Residence Nil Rate Band

The residence nil rate band is a new tax allowance for home owners. It makes it easier for you to pass on your family home to your children by transferring part of its value without tax charges.

The residence nil rate band will be introduced on 6 April 2017 and the maximum available amount will increase each tax year as follows:

  • 2017 – 2018: £100,000
  • 2018 – 2019: £125,000
  • 2019 – 2020: £150,000
  • 2020 – 2021: £175,000
  • 2021 onwards: RNRB increases in line with the consumer price index

In order for your estate to qualify for the RNRB its value must not exceed £2m, you must own a home which you have lived in at some point and it must be passed on to a direct descendant. A direct descendant can include your child or children, step-child, adopted child, grandchild or any combination of these.

In this way you can give your children £425,000 yourself from 6 April 2017 and up to £500,000 in 2020 by utilising the inheritance tax free £325,000 nil rate band and the increasing residence nil rate band.

By using what is known as your ‘transferable allowance’ you can increase this amount. Both your nil rate band and residence nil rate band can be transferred to your spouse upon your death. This gives you the potential for leaving up to £1m tax free to your children from 6 April 2020.

By having a specialist inheritance tax solicitor assist you with your estate planning you can maximise the assets you can pass on to your children. We can offer advice on tax planning, the residence nil rate band and how this can be eroded by giving gifts to relatives within the seven years preceding your death.

Call our inheritance tax solicitors on freephone 0800 916 9056 or contact us online.

John Fawcett specialises in complex tax and probate matters and works in the Sheffield wills, tax, trusts and probate team for Slater and Gordon Lawyers.

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