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Residence Nil Rate Band (RNRB).

A new tax-free allowance was announced in the Summer Budget 2015 (the Residence Nil Rate Band) that will take effect on or after 6th April 2017.  Downsizing provisions have yet to be finalised.

There are a lot of myths and misconceptions surrounding this new allowance - please call or view our website pages (not yet updated) for further information - including:

  • everyone has a new allowance of £1M;
  • everyone can pass their home free of tax to their children

You may not get the full allowance (or double the allowance) if:

  1. your estate exceeds £2M
  2. you rent property
  3. you don't leave your property (or proceeds of sale) to the right qualifying people and in the right manner
  4. you are unmarried

WATCH THIS SPACE!

Business Property Relief Trusts

How you can protect your business assets and limit IHT

Many couples draw up simple Wills whereby on the death of the first partner the whole of the estate passes to the survivor, and on second death to children or other family members. For someone who is not in a relationship often the estate is passed directly to children or other family members.

Where the deceased is a business owner then what is the impact on the business, any surviving business partners, and your spouse/partner, children and other beneficiaries when a “simple” Will is drafted?  What are the issues with regards to Inheritance Tax?  What is the impact if your spouse/partner or other beneficiaries:

  • sells their inherited shares/business holding?
  • enters a new relationship or remarries?
  • needs long term care?
  • goes bankrupt?

Under certain conditions some business assets (e.g. shareholding) and AIM-listed shares will qualify for 100% Business Property Relief (BPR) meaning that, regardless of value, they are totally free of Inheritance Tax (IHT).  Although IHT may be avoided when these business assets pass via your Will, if these are then subsequently sold or if this tax relief is abolished between 1st and 2nd deaths, the proceeds will become taxable.  So your children or other beneficiaries may be obliged to hand over 40% of their inheritance to the government.

By gifting your business assets via your Will into one or more Business Property Relief Trusts the issues bullet-pointed above can be mitigated.

Benefits of the Trust

  • the company can continue to trade;
  • the surviving spouse/partner and children can still draw the necessary funds/dividends they are entitled to
  • if the trustees (which usually includes the surviving spouse/partner) sells the business assets then the proceeds won’t be taxed on second death as the funds are part of his/her taxable estate;
  • The business assets or proceeds from sale are protected should the surviving partner enter a new relationship or remarry as the assets won’t pass via their Will; and
  • The business assets or proceeds from sale are protected from being assessed for long term care costs.

Other points of note

  1. If the surviving spouse/partner were to have surplus funds in their estate and were to purchase the business back from the trustees then so long as the shareholding qualified for 100% BPR, usually by owning the shares for two years, then additional IHT will have been saved on the funds used to purchase the business;
  2. The trust can be used in conjunction with a Cross Option Agreement and other tax or estate planning Trusts in your Will.