What relief is there?
There is an IHT relief which applies specifically to the family home. This is the Residential Nil Rate Band (RNRB). This works as an additional nil rate band of £175,000 which can be set against a qualifying home in the deceased’s estate. This cannot be used against any other asset and is in addition to the main nil rate band of £325,000. Married couples or civil partners can only have one main residence between them, where there is more than one home.
What are the qualifying criteria?
The RNRB is only available when the family home is inherited by a lineal descendent, meaning your children or grandchildren etc. Another restriction is for larger estates. The RNRB is gradually tapered where the net value of an estate exceeds £2m. For every £2 above the £2m threshold it is reduced by £1.
As with the main nil rate band where there is an unused amount of the first death, the unused RNRB is transferable between spouses or civil partners.
Is there any other IHT relief on the family home?
The only other relief potentially available is that for a farmhouse which is occupied by a farmer for the purpose of agriculture. Specific ownership requirements would apply and the relief would be limited to its agricultural value.
What if I were to gift my house?
If the family home is gifted to the next generation, it would be a Potentially Exempt Transfer (PET). The normal rule would mean that if the parents survive a further seven years from the date of the gift, the value would fall outside of their estate. However, if parents still live in the property that does not work for IHT as there is a gift with reservation of benefit, i.e. they still benefit from the gifted asset. If the donor does not pay market rent to live there, the property would remain in their estate for tax purposes.
When gifting assets, it is important to consider Capital Gains Tax (CGT). Where an asset is gifted to a related party it is deemed to be at market value so can give a CGT liability even where no money has changed hands. If you are gifting your main home Principal Private Residence relief (PPR) should be available which covers gains on a person’s only or main residence. A garden will also be included within the PPR exemption if it less than 0.5 hectares. Sometimes a larger garden would qualify if it is needed ‘for the reasonable enjoyment of the dwelling house’.
What about other land?
Most other land will not qualify for any relief. However, where land is that of farmland, (land occupied for the purposes of agriculture), then 100% Agricultural Property Relief (APR) will exempt the agricultural value of that land after two years’ ownership where the owner farms the land. Where the land is tenanted, APR will be available after seven years’ ownership. Where farmland is gifted, holdover relief is available against CGT for tenanted and in-hand farmland which works by reducing the base cost for the donee.
Might this change in the Budget?
The answer is yes. We do not know what changes might happen, but both IHT and CGT could see changes. Once the Chancellor has delivered her speech on 30 October, please do not hesitate to get in touch to discuss how any changes may affect you.
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