Thresholds on the nil-rate, and residence nil-rate and taper, will be fixed until 2026
Legislation will be introduced in Finance Bill 2021 to maintain the inheritance tax (IHT) nil-rate band (NRB), residence nil-rate band (RNRB) and RNRB taper threshold at their 2020-21 levels until the end of 2025-26. The legislation will disapply the indexation provisions in sections 8 and 8D of the Inheritance Tax Act.
This means that qualifying estates can continue to pass on up to £500,000 and the qualifying estate of a surviving spouse or civil partner can continue to pass on up to £1m without an IHT liability.
There are two nil-rate bands within IHT. Subject to available reliefs and exemptions, tax is payable to the extent the net value of the estate exceeds these nil-rate bands.
The £325,000 NRB is available to all in respect of their death estate and can be set against all assets. The NRB can also be used
- to allow individuals to make lifetime chargeable transfers up to £325,000 within a seven-year period without an IHT liability
- in calculating the periodic and exit charges on relevant property trusts
The £175,000 RNRB is available to those passing on a qualifying residence on death to their direct descendants. A taper reduces the amount of the RNRB by £1 for every £2 that the net value of the estate is more than £2m.
Following the death of an individual, any unused NRB or RNRB can be transferred to their surviving spouse or civil partner. This means that from 6 April 2021, qualifying estates can continue to pass on up to £500,000; if the NRB and RNRB remain unused, the qualifying estate of a surviving spouse or civil partner is still able to pass on up to £1m without an IHT liability.
The NRB has been maintained at £325,000 since 2009/10.
The RNRB was introduced in 2017/18, starting at £100,000 and increasing by £25,000 each year until reaching £175,000 in 2020/21. The taper threshold has been set at £2m since the RNRB was introduced.
The current legislation requires the NRB, RNRB and threshold for the RNRB taper to increase in line with the Consumer Prices Index (CPI) in each year from 2021/22.
This article has been shared from ACCA In Practice, to whom copyright belongs. Whitefield Tax are an ACCA Member Firm