Inheritance Tax planning - our latest Q&A for Liverpool's Your Move magazine

Q: My wife and I have assets worth about £900,000 between us. This is made up of our main house, worth £400,000 and a buy to let portfolio (mortgage free) worth about £500,000.

We have been advised to sell some of the buy to lets and gift the proceeds to our children to reduce our Inheritance Tax (IHT) bill. The buy

to let properties are worth a lot more than we paid for them, so there will be some Capital Gains Tax to pay when we sell, but we have been told that this way we will save IHT at 40%. Is this correct?

A: In a word, no. There have been some recent changes to IHT which means that people in your situation should revisit their financial and tax arrangements.

Currently an individual has an IHT allowance, or “nil-rate band”, of £325,000. This amount is transferable between spouses and civil partners, giving a couple a nil-rate band of £650,000 before tax at 40% is due on their estate.

Up until now, to reduce IHT, couples could sell assets such as second properties, gifting the proceeds to their children. Provided they survived 7 years from the gift the amount would be removed from the estate reducing the IHT bill. So in some cases paying the Capital Gains Tax was worthwhile to avoid an even higher IHT bill.

For many people this thinking no longer applies.

The recent changes mean that from 2017, individuals who die with a main residence in their estate each get an additional £100,000 “residence nil-rate band” (RNRB). This will increase to £125,000 in 2018/19, £150,000 in 2019/20 and £175,000 in 2020/21, going up after that in line with the consumer price index. This new allowance will bring a couple’s overall IHT nil-rate band to £1million. To claim the RNRB you must own a property that has been the family home, and it must be passed to direct descendants. The additional allowance applies irrespective of the value of the family home in the estate.

The important point is that the Capital Gain Tax slate is wiped clean on death, and assets can be passed on to beneficiaries at their current market value. So where the value of a primary residence and other assets falls below the £1m threshold, as in your case, these can now all be passed on inheritance tax free.

To maximise the benefit of the new residential nil-rate band, you must both own the primary residence property, which will require both husband and wife to be on the property deeds.


As always good professional advice, tailored to your own specific circumstances will be required.