Main Residence Nil Rate Band

The impact of Inheritance Tax has been reduced recently for families that own their own home. HMRC has introduced a new relief, the Inheritance Tax main residence nil-rate band (RNRB), which came into effect on 6 April 2017.

The RNRB is a transferable allowance, that is available to the estates of both parties in a marriage or civil partnership, when their main residence is passed down to a direct descendent: for example, their children or grandchildren. The RNRB is available in addition to the existing £325,000 Inheritance Tax nil-rate band (NRB) threshold.

The RNRB is being introduced in stages:

  • Initially, £100,000 in 2017-18
  • £125,000 in 2018-19
  • £150,000 in 2019-20, and
  • £175,000 in 2020-21.

Any unused portion of the RNRB can be transferred to a surviving spouse or partner in a similar way to the existing NRB. The combined benefit of these two reliefs, means that by 2020-21, parents will be able to pass on their private residence – to a value of up to £1 million – free of Inheritance Tax to their direct descendants.

From 2021/22 onwards the RNRB is due to increase annually in line with the Consumer Prices Index (CPI).  However, there will be a tapered withdrawal of the RNRB for estates with a net value of more than £2m. This will be at a withdrawal rate of £1 for every £2 over this threshold.

Technical notes: to qualify for the RNRB:

  • The deceased’s estate must include a residential property or qualify under the downsizing rules.  
  • The RNRB is transferable where the second spouse or civil partner dies after 5 April 2017, irrespective of when the first partner died.
  • If there is more than one residential property, the personal representatives of the deceased person can nominate the property to qualify for the relief.
  • The property must have been a residence of the deceased. A buy-to-let property would not qualify for the relief.
  • The property must be left to a direct descendant (including a step-child, adopted child or foster child) or other lineal descendant of the deceased. 

Planning advice:

Readers who have not reviewed their estate planning since this new relief was announced, should consider their options. Estate planning, to mitigate the effects of Inheritance Tax, is a moveable feast. To stay ahead of the planning curve, it will benefit couples with a significant investment in their home to reconsider their Wills and any new opportunities to reduce a possible 40% estate tax. We can help. Please call if you would like more information.

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Case Studies

The Tax Man

Minimise the stress of an investigation and make use of our extensive experience in securing best outcome for our clients

Business Valuation in Distress

Take advantage of our impartial and rigorous due diligence procedures

FD in The Cupboard

Our innovative ideas are here to improve your business performance and secure appropriate and cost effective funding

The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.