Let's kick off the allowances with a big one. The residence nil rate band, a relatively new allowance to IHT. At the time of writing the residence nil rate band for inheritance tax is £175,000.

What are the qualifying criteria?

There are some very detailed rules when it comes to downsizing or moving into care homes but we will keep it simple for this series. To qualify we are looking at a residence (a home) which was used by the donor as their home.

The gift needs to pass to a lineal descendent (again there are further details around exactly what comes within this expression but for this article we will focus on the obvious, Stan's daughter).

As mentioned in the introduction to this series Stan was not motivated in any way by how he planned to gift his estate so is very open to reconsidering the split. Say he was willing to swap the allocation, with the house going to his daughter and the remaining estate going to his sister, what effect would this one action have on his overall IHT bill?

Total estate - £1,265,000

Less Nil rate band £325,000

Less residence nil rate band £175,000

£765,000

IHT at 40% £306,000

Taking advantage of the residence nil rate band could reduce the tax payable on Stan's estate by £70,000. Not a bad start for Stan and a substantial saving on his estate.

As always this article is a basic introduction to raise awareness of the allowance, it is always recommended to request specific advice while planning the use of IHT allowances.

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