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Thousands excluded from tax break on family home

Many inherited estates are unfairly missing out on the new Residence Nil Rate Band (RNRB) according to NFU Mutual.

The RNRB is an additional tax break of up to £100,000 (which can be added onto the existing nil rate tax band of £325,000 on the family home) which was introduced in April 2017. It will rise by £25,000 each tax year up to a maximum of £175,000 in 2020/21 and so for this tax year 2018/19 is £125,000.

According to NFU Mutual, which got the information through a freedom of information request, inheritance tax receipts hit £1.9bn in the first four months of the tax year despite a rise in the number of claims for the increased tax break on family homes.  5,420 taxpaying estates successfully claimed for the Residence Nil Rate Band (RNRB) last year yet 3,490 taxpaying estates have claimed the RNRB so far up to the end of July 2018.

The unfairness arises because as the RNRB only applies to those leaving the home to direct descendants or those whose net estate does not exceed £2m, those without children or those whose business is included in the estate making it worth over £2m cannot claim.

Sean McCann, Chartered Financial Planner at NFU Mutual, said: “This tax break does nothing to change the perception that inheritance tax is fiendishly complex and unfair.

“The conclusion of the Office for Tax Simplification’s (OTS) review of IHT can’t come soon enough. It’s plain to see that in many instances the complexity of the rules means that many people are missing out. The residence nil rate band is only available to those leaving their home to ‘direct descendants’ which unfairly penalises those without children who want to pass on their house to nieces, nephews, brothers or sisters. Many business owners also miss out on some or all of the extra relief on the family home, if their total estate including their business exceeds £2m. This is because the value of the estate is tested before applying Business Property Relief.”

The Chancellor of the Exchequer and the Financial Secretary to the Treasury requested that the OTS carry out a review of a range of aspects of Inheritance Tax and how it functions to identify simplification opportunities earlier in the year and the OTS is scheduled to report back in Autumn 2018.

 

 

 

 

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