Plans to introduce downsizing rules that allow the value of property to be passed down to descendants could force people to maintain records for a generation or risk not being able to take advantage of the revised residence nil-rate band, an accountant has warned.
HM Revenue and Customs has began seeking feedback on plans to allow people to retain the value of their homes after downsizing for the purposes of calculating the level of inheritance tax relief available to their families.
However Julia Rosenbloom, director in private client tax services at accountancy Smith and Williamson, said what has not been, so far, highlighted by the tax office is these plans could necessitate individuals retaining important documentation and accurate records well in to their later life.
She said: “As these rules are being introduced to benefit descendants it is important to retain very detailed records of financial activity, particularly if more than one property transfer is completed, throughout your life.
“This should allow your descendants to easily claim the revised residence nil-rate band allowance, a tax-free sum. However, the concern is that many may not retain detailed records of a property sale that occurred a number of years ago.”
The revised residence nil-rate band is set to begin from 6 April 2017 and will increase from £100,000 in 2017 to 2018 to reach £175,000 in 2020 to 2021 and will then increase in line with CPI inflation.
This allowance is available in addition to the current inheritance tax-free threshold of £325,000.
Ms Rosenbloom said: “Clearly this is a positive piece of proposed legislation which is intended to work for rather than against the taxpayer.
“However, the level of complexity which the new rules will create in some (perhaps many) circumstances could result in individuals losing some of the relief that would otherwise be available.
“As a result the necessity to take advice is likely to become more important than ever.”
Patrick Connolly, head of communications at Chase de Vere, said while the main residence nil rate band creates more tax planning opportunities it also adds greater complexity.
He said: “For many people this is yet another reason why they should use an independent financial adviser. For those who don’t, they’ll need to ensure they fully understand the rules and that they maintain appropriate records.”
It was in the chancellor’s Summer Budget that alterations to inheritance tax were outlined, including the introduction of an additional nil-rate band when a residence is passed on death to direct descendants.
Any unused nil-rate band can be transferred to the surviving spouse or civil partner. It will also be available to anyone who downsizes after 8 July 2015 and the assets of equivalent value are passed on death to direct descendants, subject to a technical consultation.
In addition, there will be a tapered withdrawal – at a rate of £1 for every £2 of the extra nil-rate band – for estates with a net value of more than £2m.
emma.hughes@ft.com
