The summer budget introduced this new proposal for inheritance tax and today we look at, in a bit more detail, how this new legislation might help doctors in Bristol.
In summary, the new 'Main Residence Nil Rate Band' (MRNRB) will be an additional amount of nil rate band for inheritance tax purposes that can be set against the family home. It is available when the home is transferred on death to direct descendants of the deceased. As before, any amount of a doctor's estate that falls above the standard nil rate band AND the MRNRB is charged to inheritance tax.
When Is The New MRNRB Available?
The additional allowance is available where a 'qualifying residential interest' is 'closely inherited' on or after 6th April 2017. The 'qualifying residential interest' broadly means that the property should have been at some point the deceased's residence. A property that used to be the deceased's residence but at time of death was let out, would still qualify.
The MRNRB is fully transferrable on first death of a married couple where the share in the residence passes to the survivor.
Where more than one residence exists at the point of death, the personal representatives of the deceased are allowed to nominate which one of the residences the MRNRB will be set against.
Where more than one residences exist between a married couple there are some interesting planning opportunities. For instance, if doctor's own two qualifying properties and the combined value is below the combined value of the 2 additional MRNRB, it may be worth considering passing one of the properties to the children on the first death to prevent an additional MRNRB being wasted.
The 'closely inherited' clause means broadly children or grandchildren of the deceased doctor. This includes step-children, adopted children and fostered children.
In circumstances where the deceased doctor had downsized to a less valuable property or ceased to own the property on death, it is proposed a relief will apply. We await detail of how this relief will work in practice.
What Is The Value Of The MRNRB?
The new MRNRB is being phased in between April 2017 and April 2020 as follows:
- £100,000 for the tax year 2017/18
- £125,000 for the tax year 2018/19
- £150,000 for the tax year 2019/20 and
- £175,000 for the tax year 2020/21 and beyond.
As long as the deceased doctors' estate is below £2,000,000 then the full standard MRNRB will apply.
Where the deceased estate is above £2,000,000 then the MRNRB will be reduced by £1 for every £2 above £2,000,000. This means that for deaths occurring on or after 6th April 2020, no additional allowance will be available for estates with a net value of £2.35m (or £2.7m where the MRNRB is fully transferrable on first death of a married couple).
How Will The MRNRB Be Transferred?
The MRNRB is fully transferrable between spouses in a married couple. This can be claimed where the second death occurs on or after 6th April 2017 regardless of when the first death occurred. However, it would appear from draft legislation that if the first death occurs before 6th April 2017 then the MRNRB transferred will be £100,000 regardless when the second death occurs.
If you are a doctor in or near Bristol and would like a review of your existing estate and inheritance tax arrangements then please get in touch on firstname.lastname@example.org or telephone 0117 966 5699.