The nil rate band has remained at £325,000 since April 2009 and is set to remain frozen at this amount until April 2021.
An additional nil rate band is now available for deaths on or after 6 April 2017, where an interest in a residence passes to direct descendants. The amount of relief is being phased in over four years; starting at £100,000 in the first year and rising to £175,000 for 2020/21. For many married couples and registered civil partners the relief is effectively doubled as each individual has a main nil rate band and each will potentially benefit from the residence nil rate band.
The additional band can only be used in respect of one residential property, which does not have to be the main family home, but must at some point have been a residence of the deceased. Restrictions apply where estates are in excess of £2 million.
Where a person died before 6 April 2017 their estate did not qualify for the relief. A surviving spouse may be entitled to an increase in the residence nil rate band if the spouse who died earlier had not used, or was not entitled to use, their full residence nil rate band. The calculations involved are potentially complex but the increase will often result in a doubling of the residence nil rate band for the surviving spouse.
Spouse exemption for non-domiciled individuals
The IHT exemption available to spouses and civil partners is limited in situations in which a UK domiciled individual transfers assets to their non-domiciled spouse or civil partner. The current limit is £55,000 over the lifetime of the transferor. This limit will be increased from 6 April 2013 to £325,000 and will be linked to future increases in the nil rate band.
As an alternative, it will be possible for the non-domiciled spouse to make an election to be treated as domiciled in the UK. This will bring the full spouse exemption into play but at the cost of the worldwide assets of that spouse coming within the scope of IHT (currently only UK assets would be liable). It will be possible to make the election at any time and for its effects to be backdated for up to seven years (although not earlier than 6 April 2013). The election can be made by the executors within two years of the date of death of a non-domiciled individual.
The election will be particularly beneficial where a non-domiciled spouse does not have significant assets outside the UK.
IHT relief for liabilities on an estate
In calculating the IHT liability on an estate the value of assets is reduced by any liabilities owed by the deceased at the date of death. These provisions are being abused by some tax avoidance schemes and so the rules will be tightened to prevent this abuse.