Bereaved relatives are unnecessarily paying up to £140k in Inheritance Tax ‘IHT’ due to a lack of knowledge of the nil rate main residence band. This is partly because HMRC has not promoted this complex relief, causing families to pay more tax than is required.
Since 2018, the main residence nil-rate band provided extra tax relief for homeowners when passing down their home to a direct descendent. Also known as the ‘family home allowance’, this relief is worth up to £175,000 and is on top of the standard IHT nil rate band of £325,000.
For spouses and civil partners, then combined this gives a standard nil rate band of £650k plus the extra combined family home allowance of £350k. It is on this amount, that some families are missing out on £140k of IHT once the 40% IHT charge is applied.
Says Julia Gallagher, tax partner and chartered tax advisor at Chartered Accountants Curo “A significant amount of IHT is being overpaid by many families, particularly in cases where the deceased had downsized to a lower value property. The family allowance is available and in many cases this will wipe the tax bill entirely.
Claiming the allowance
Families should claim the family home allowance within 2 years of death although we understand HMRC may consider later claims in some circumstances.”
There are growing calls to increase the IHT nil rate band which has stayed the same since 2009.
The rules and calculations involved in claiming are complex but this should be weighed up against the amount of tax which could be saved in a successful claim.
Says Julia “With such a significant amount of tax at stake, it is likely to be worth appointing a tax specialist who can assess, prepare and submit a potential claim.”
How Curo can help you
We can advise on all aspect of inheritance tax, including advice on trusts, estate planning and making claims.