Over the past couple of weeks, I have been comparing pension-related headlines with the reality of the legislation supporting them and discovering some pretty big differences. Another misleading headline is the one that claims no couple with a combined estate of less than £1m should have to pay inheritance tax. There is detail to consider.
1. It will be phased in gradually between 6 April 2017 and 6 April 2020 on the following basis:
2. It can be offset against the value of the owner’s interest in a property, which, at some point, has been occupied by the owner as a residence. It will be available when an owner dies on or after 6 April 2017 and their interest in it is transferred to direct descendants.
3. The transfer must be on death and can be made by will, under intestacy or as a result of the rule of survivor-ship.
4. In general, the transfer must be outright but certain other transfers into trust on death are permitted: for example, bare trusts, IPDI trusts, and 18-to-25 trusts and trusts for bereaved minors.
5. Special rules will be introduced to protect those who downsize. How this will work is currently subject to consultation.
6. Where the value of the deceased’s estate exceeds £2m (after deducting liabilities but before reliefs and exemptions) the RNRB will be reduced by £1 for every £2 excess value. It is important not to underestimate the “before reliefs” part of this condition. It means you ignore business property relief and agricultural property relief, for example, which could make quite a difference.