Freedom of information request reveals thousands are not taking advantage of residence nil rate band allowance
The government collected an eye-watering £1.9 billion in inheritance tax receipts in the first four months of the tax year, as people fail to take advantage of new tax breaks.
IHT receipts between April and July hit £1.9 billion, with just 5,420 estates claiming the new residence nil rate band. A freedom of information request made by NFU Mutual reveals thousands of estates are missing out on the tax break.
Introduced in April last year, the residence nil rate band (RNRB) provides an additional tax break on the family home; the value of the tax break will rise further over the next two years.
The tax break is a way of allowing families to pass on their housing wealth. It applies when property is passed on to direct descendants.
Individuals are able to pass on assets worth up to £325,000 (the nil rate band) when they die, before inheritance tax at 40 per cent is payable. But the number of estates exceeding this limit has climbed after years of rapid house price growth.
The government introduced the RNRB as a way to allow people to pass on their housing wealth.
At present the RNRB allows an individual to pass on an additional £125,000 of property wealth tax-free on top of their nil rate band allowance, saving an individual up to £50,000 of inheritance tax. This limit will increase by £25,000 each tax year until it reaches £175,000 in April 2020.
As with the standard nil rate band, the RNRB can be passed to the spouse on the first death of a married couple or civil partner, effectively giving an additional £350,000 of inheritance tax relief for a couple when the full RNRB is in force. In conjunction with each partner’s £325,000 NRB, this amounts to £1 million of tax relief.
The number of people making use of the new allowance has increased, but NFU Mutual warns that many are still not taking advantage of the tax break, pointing that many people are put off by the complexity of the rules around inheritance tax. You can brush up on the basics here.
Just 3,490 taxpaying estates claimed the RNRB between April and the end of July. However, more than 24,000 estates pay inheritance tax each year.
Sean McCann, chartered financial planner at NFU Mutual, says: ‘This tax break does nothing to change the perception that inheritance tax is fiendishly complex and unfair. It’s plain to see that in many instances the complexity of the rules means that many people are missing out.’