How to maximise IHT savings using the nil-rate band

It also marked the first time in the history of this tax that the way it operates changes according to the relationship of a person benefitting (other than the traditional spouse exemption).

RNRB makes a major rethink of estate planning necessary, just as it is becoming well understood that wills (and trusts owning interests in properties) also need re-thinking to make the most of this valuable new relief. What does the reference to estate planning mean?

Estate planning is the integration of three disciplines, legal, tax planning and financial planning.

With the significant up-skilling of financial planners, working to higher levels of qualification than the old style IFAs, there is potential for three sets of professionals to work together: lawyers, tax advisers (some of whom may be accountants) and the new breed of financial planners, although many lawyers will also offer the specialist tax advice needed so that it can all be done by two advisers.

If anyone is planning to start drawing on a pension it is good to stop and ask if advice has been taken since the major reforms.

The introduction of RNRB makes estate planning ever more crucial and important that these advisers work together. Why?

RNRB is a valuable relief worth currently a saving of £40,000 or £80,000 of IHT (the latter for a widow(er) or married couple), figures that increase to £70,000 and £140,000 of IHT saving in the tax year 2020/21 when the RNRB will be £175,000 for one, or £350,000 for a couple or a widow(er).

Those potential tax savings can be put in jeopardy by two major restrictions:

1. The taper threshold of £2m, so that estates with a value over that limit lose £1 of relief for every £2 excess. This amounts in effect to a marginal IHT rate of 60 per cent on the band of capital over £2m. With the current RNRB of £100,000, or £200,000 for a married couple, it means the full benefit of RNRB is lost with an estate of £2,200,000 or £2,400,000 respectively. 
2. The traps for gifts left by will or trust, as to how they need to be left to secure the relief, which can mean beneficiaries who should qualify paying unnecessary extra tax. These traps can easily catch the unwary.

Space does not permit consideration here, but suffice to say proper advice should be taken from someone who is confident at dealing with RNRB. It is very complicated, and can guide clients round the traps.