03 April 2017
Upcoming changes to family home allowance and probate court fees in Spring
1) New Family Home allowance
On 6 April 2017, the new family home allowance - otherwise known as residential nil rate band - will be introduced. It will eventually be worth £175,000 per person by 2020. Added to the £325,000, this means a potential new allowance for property owners of £500,000 or £1 million for couples.
Who will qualify?
- The deceased must own a property (subject to downsizing provisions);
- The property must be inherited by direct descendants;
- The deceased’s estate must be below £2 million in value otherwise the allowance is tapered;
- Interest in possession trusts, disabled persons trusts, bereaved minor’s trusts; and
- Age 18 – 25 trusts will qualify.
What are my options if I have a discretionary trust?
There has been commentary to suggest that if you have left your estate to a discretionary trust then your estate will not qualify for the new allowance because the beneficiaries are deemed not ‘to inherit’. However, the current position is that provided an appointment of the property is made within two years of death to a direct descendant, this would be treated as being written back into the will and so the trustees could retrospectively secure the allowance for the estate. The key thing is for the executors of an estate to seek professional advice at the earliest opportunity. The main advantage of having a discretionary trust within the will is the flexibility it affords to the trustees to review the position at the date of death and this advice remains the same.
Will I lose out if I don’t do anything?
Despite media reports, it is not true to say that hundreds of thousands of people will miss out on the allowance if they do not change their wills. However, clients should keep their wills under review. We are happy to discuss the new changes to the law and how wills should be drafted so as to take advantage of the Residence Nil Rate Band.
My Will contains a nil rate band discretionary trust – is this still appropriate?
Prior to 2007, if a married couple left their estate to each other, then on the second death they would have ‘lost’ one of the allowances so it became common to insert ‘nil-rate band discretionary trusts’ into the wills to overcome this.
The concept of the transferable nil rate band was introduced in October 2007. The effect is that the first spouse’s unused allowance can be claimed against the survivor's nil rate band which could be a combined tax free allowance of £650,000.
This ability to transfer the unused allowance makes matters more straightforward; however there are still advantages for such trusts, for example:
- For care fees planning, if the nil rate band passes to a trust from which the surviving spouse can benefit, then neither the income nor the capital of the trust will be taken into account by the local authority,
- To provide protection against insolvency or divorce of the intended beneficiaries,
- If there is a chance that the surviving spouse might remarry,
- To reduce the estate of the surviving spouse to below £2 million.
In addition a nil rate band discretionary trusts can be useful where a combined estate is over £2 million. For example if a couple’s combined estate is worth £2.3 million, and on the first death the nil rate band is left on trust then on the second death the estate is reduced to below £2 million and the allowance would be available.
2) Probate Court Fees
B P Collins would like you to know that the government is increasing probate court fees from the current £155 flat rate to a scaled fee, according to the value of the estate in the probate application from May 2017.
Value of Estate (before inheritance tax) Fee
- Exceeds £50,000 but does not exceed £300,000 = £300
- Exceeds £300,000 but does not exceed £500,000 = £1,000
- Exceeds £500,000 but does not exceed £1m = £4,000
- Exceeds £1m but does not exceed £1.6m = £8,000
- Exceeds £1.6m but does not exceed £2m = £12,000
- Above £2m = £20,000
Are all assets caught under the new fees?
It should be noted that any assets held jointly would not necessarily require a grant of probate and therefore may not be included in the figures to be assessed for fees. For example, if your home is owned as joint tenants or you have joint bank accounts these pass by survivorship and a grant is not required. The new fees are calculated on the value of your net estate for the purposes of the grant – that is the value of all assets in your sole name less any liabilities at the date of your death.