Some circumstances in which the additional allowance cannot be claimed

The residence nil rate band was introduced in April 2017 as a new allowance for passing on the family home. For people who plan to leave their property to children or grandchildren, the allowance could reduce an inheritance tax bill significantly.

Discretionary trusts don’t qualify
The family home doesn’t have to be passed on directly. The allowance is still available if property is given through certain types of trust, including 18 to 25 trusts, bereaved minor trusts and disabled persons’ trusts. As long as the trust gives the child the right to use or occupy the property and then becomes part of their estate after your death, the residence nil rate band can be claimed.

But notably this list does not include discretionary trusts, even if the children are the intended beneficiaries. Many wills use discretionary trusts to distribute assets in line with the wishes of the deceased, and this can be a particularly complex area.

Tapered allowance for bigger estates
The residence nil rate band is tapered off for estates worth more than £2 million. For every £2 your estate is valued over £2 million, your allowance is cut by £1. This means the allowance will disappear completely for estates worth more than £2.35 million after April 2020.

The way that HMRC calculates the value of your estate for the residence nil rate band is slightly different to the usual inheritance tax calculation. For example, business relief assets and gifts made to charities are included when assessing whether the allowance should be tapered.

If one of your clients has set up a discretionary trust in their will, or their estate is valued above £2 million, they should speak to a financial planner about how they can make the most of the residence nil rate band.

Alison Fitzsimons is an Associate Director with Tilney in Scotland, the Society's wealth management partners. Find out how Tilney can assist with wills, trusts and estate planning for clients.

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