Private Client - Residential Nil Rate Band introduced - April 2017

Residential Nil Rate Band introduced - April 2017

Current situation

Under the existing inheritance tax (IHT) rules individuals have a nil rate band  of £325,000.As such an estate worth less  than £325,000 will fall under the IHT threshold, which means it will normally be exempt from inheritance tax. For married couples and civil partners, nil rate bands are transferrable and as such two full allowances (£650,000) may be claimed on the second death (as long as the first person to die leaves their entire estate to their partner). The remainder of an estate above these thresholds will be subject to  IHT at a rate of 40%. This is reduced to 36% if at least 10% of the estate has been left to charity.

Change from April 2017

A new residence nil rate band (RNRB) comes into effect from 6th April 2017. The effect of this will be to increase the IHT threshold when children (including adopted children, foster children and step children) or grandchildren inherit a residential home. The RNRB will increase the threshold by the following amount:

●£100,000 (for deaths on or after 6th April 2017)

●£125,000 (for deaths on or after 6th April 2018)

●£150,000 (for deaths on or after 6th April 2019)

●£175,000 (for deaths on or after 6th April 2020)

From 6th April 2021, this rate will continue to increase annually in line with the Consumer Prices Index (CPI).

The introduction of the RNRB will effectively increase the total nil band rate available for individuals who are leaving their estate to children or grandchildren, to £425,000 from 6th April 2017 and rising to £500,000 by 2020. Consequently, direct descendants of married couples or civil partners will stand to inherit up to £1 million free of any IHT from 6th April 2020.

Increase in Probate Registry fees - May 2017

Current situation

Currently, the fees payable to the Probate Registry on the application for a Grant of Probate (or Letters of Administration in the absence of a will) stand at £215 (or £155 if applying via a solicitor). The Grant of Probate is required to allow executors to administer an estate (eg. distribute assets of the deceased to beneficiaries) and the fees were originally designed to cover administration costs to the Probate Registry of processing the applications.

Change from May 2017

These probate fees will increase dramatically for any estates worth over £50,000, on a sliding scale from £300 right up to £20,000, from May 2017 (a specific date has not yet been announced). Conversely, for any estates worth less than £50,000, the fee will be removed altogether (although many estates valued under £50,000 do not require a Grant of Probate anyway). The new probate fees will be as follows:

●Up to £50,000:                               Exempt

●> £50,000 - £300,000:                 £300

●> £300,000 - £500,000:              £1,000

●> £500,000 - £1 million:              £4,000

●> £1 million - £1.6 million:           £8,000

●> £1.6 million - £2 million:           £12,000

●> £2 million and over:                   £20,000

These probate fees are payable according to the value of the estate before any inheritance tax has been taken into account - and they apply to each individual (eg. if the joint assets of a husband and wife were worth just over £2 million, £8,000 will need to be paid for probate in respect of the first death and £20,000  on the second death - so their beneficiaries will stand to lose £28,000 from the value of the estate in addition to any inheritance tax payable).

Note that the relevant date for determining the probate fee is the date on which the completed application is received by the Probate Registry.