Examination Timing: 00H04M06S
Thomas, a bachelor, passed away on 20 May 2017. According to his will, he left his entire estate to his daughter, Emily. Thomas did not make any lifetime gifts. His estate included his house valued at £95,000, which had been his only residence for 15 years, bank and building society accounts with balances totalling £400,000, and personal chattels worth £5,000. There was an outstanding mortgage of £15,000 on the house. His unpaid gas, electricity, water rates, and council tax bills amounted to £1,000. Other debts and funeral expenses totalled £17,000. In the 2017/18 tax year, the nil-rate band was £325,000, and the main residence nil-rate band was £100,000. Which of the following best describes the nil-rate bands available for Thomas’s estate?
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Thomas’s estate is subject to two types of nil-rate bands: the standard nil-rate band of £325,000 and the main residence nil-rate band. The main residence nil-rate band applies to the value of the home passed to direct descendants and can be up to £100,000 in the 2017/18 tax year. However, since the house's value is only £95,000, the main residence nil-rate band is reduced by the outstanding mortgage (£15,000) and the other debts (£1,000 and £17,000), leaving £62,000 for other assets, thus allowing for an additional £80,000 nil-rate band.
Key Point: The nil-rate band for inheritance tax includes a main residence nil-rate band, which is reduced by the value of outstanding mortgages and debts, thus reflecting the net value of the residence passed to direct descendants.
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