Fewer Harrogate residents are being exposed to inheritance tax bills than ever before thanks to new rules – but one solicitor is warning that many still risk losing out on the benefit.
Jessica Savage, who works for Milners solicitors in the town, was speaking on the eve of the first anniversary of changes to the way the wealth within a family home can be passed on when the owner dies.
The resident nil rate band (RNRB) was launched by the Government to mitigate rising house prices in places like Harrogate where – after soaring 11% in the past two years – the average value now stands at almost £333,000.
And, according to RightMove, this increases to £343,000 in Spofforth and £396,000 in villages such as Pannal.
Until the change, inheritance tax was payable by estates with a value of £325,000 and above for individuals, and £650,000 for couples – meaning an increasing number of Harrogate people were finding themselves being dragged into the net.
But the introduction of RNRB – known as the “family home allowance” – increases the tax-free ceiling.
This initial year of the scheme sees this extra allowance stand at £100,000 per person – offering many more people greater protection from death duties.
This allowance will rise in £25,000 increments year-on-year until it reaches its peak of£175,000 per person by 2020/21.
“Because of the rising house prices in Harrogate, people living in and around the spa town are among the big winners of thesechanges,” said Jessica, who specialises in private client law.
“Fewer people are being landed with inheritance tax bills as a result.
“Yet the complex nature of the new regime, wedded to a general lack of awareness about it and its qualifying criteria, means that there are still people who are in danger of not making the very most of this benefit.
“As we approach the first anniversary, and the tax-free amount above £325,000 threshold rises another £25,000 to £125,000, now’s the time for people to have their wills and any accompanying trust documents properly reviewed and amended if necessary.
“Reviewing a will may take a few hours but it is time well spent – the savings it can generate in the future, by avoiding some of the common pitfalls, can be substantial.”
One such potential pitfall is the so-called “sibling trap” as the changes do not extend to high-value estates that are left to brothers or sisters, nephews or nieces, for example.
Some estimates claim as many as one-in-ten people over-55 leaving their estate to a sibling, which would render it ineligible from taking advantage of the additional tax benefit.
Jessica added: “This relaxation in the rules means that by 2020/21, Harrogate couples could escape inheritance tax altogether on up to £1m of their wealth. They can pass this on tax-free to their children or grandchildren.
“This is because, by then, each spouse or civil partner will have a nil rate band of £325,000, plus an extra tax-free allowance of up to £175,000.”