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Financial advice

Residence nil-rate band (RNRB) calculator

Everyone has currently £325,000 of their total estate free of inheritance tax (the nil-rate band – NRB), provided this allowance hasn’t been used when making gifts, for example, or settling assets into trust. Your estate is the sum of your savings, investments, the market value of the house you live in and other assets. Usually pensions are ignored.

But there is a new inheritance tax allowance – the residential nil-rate band (RNRB) – which can be claimed by the estates of people who die after 6 April 2017.

Please note that inheritance tax is a complicated topic and this information has been prepared in good faith and is based on the understanding and interpretation of current law. If in doubt seek advice.

Residence Nil Rate Band – RNRB

Additional main Residence NRB (RNRB) applies if deceased’s interest in a residential property, which has been their main home at some point, is left to direct descendants on death.

Direct descendant of the deceased will be;

  • A child
  • Includes step, adopted or foster child and
  • Their direct descendants

Note – If no children RNRB does not apply

RNRB is also available where the residential property is inherited by someone who is:

  • A spouse or civil partner of a direct descendant at the time of the deceased’s death
  • A surviving spouse or civil partner of a direct descendant who has not remarried at the time of the deceased’s death.

Main Points of RNRB

  • Value of RNRB will be lower of net value of a qualifying interest in the property or maximum amount of the band.
  • It would appear that a qualifying interest is the net amount after an outstanding mortgage has been deducted.
  • Maximum amount will be phased in over 4 years;
  • £100,000 for 2017/8
    £125,000 for 2018/9
    £150,000 for 2019/20
    £175,000 for 2020/21

  • Will then increase by CPI from 2021
  • Limited to one property but PR’s (Personal representatives) will be able to nominate which one should qualify if there is more than one in the estate
  • Unused amount cannot be carried across to another qualifying property
  • Property which has never been a residence of the deceased will not qualify
  • Unused proportion of RNRB will be transferable to surviving spouse or civil partner where survivor dies on or after 6 April 2017 regardless when the first spouse died.
  • Where first death occurred before 6 April 2017 the RNRB is deemed to be £100,000
  • Proposed legislation means that irrespective of what actually happened no part of this RNRB will be deemed to have been used.
  • This means the surviving spouse’s estate will always have a 100% uplift
  • This is unless the estate of the first to die exceeded the taper threshold of £2m when the deemed £100,000 RNRB would be reduced on a 2:1 basis over £2m
  • Claim made as per current transferable nil rate band
  • The RNRB will always be used before the standard NRB
  • If “net” value of the estate is above £2m the RNRB will be reduced by £1 for every £2 above that amount.
  • Finance Act 2016 introduced legislation that where all or part of the RNRB might have been lost because the deceased had downsized to own a residence on or after 8 July 2015, the RNRB will still be available provided the deceased left that smaller residence or equivalent assets to direct descendants.

Example

  • James dies in July 2019 – the NRB is £325,000 and RNRB is £150,000
  • His share in property of £175,000 is left to his wife, Joan, as is the rest of his estate valued at £325,000

  • Joan dies in March 2021 with estate valued at £1 million, including property worth £350,000
  • Her estate is left to their daughters and so will benefit from NRB of £650,000 plus RNRB’s of £350,000 (Joan’s £1275,000 plus 100% uplift to be claimed on behalf of James)
  • No IHT due

As previously mentioned if in doubt seek advice.

Rossmore news: February 2017

A week in the news

  • One in seven businesses is failing to auto-enrol its employees in a workplace pension before the new deadline, new figures from Aviva reveal.
  • An index fund that tracks companies in the FTSE 250 but excludes investment trusts has been launched by Legal & General Investment Management.
  • Coventry for intermediaries has launched new offset mortgages and reduced the rates on some of its buy-to-let products.
  • Scots Widows has scrapped exit fees on all personal pension products.

Thousands of over 55’s lose out from pension freedoms

Hundreds of thousands of vulnerable over-55’s could be left worse off this year if they take advantage of pension freedoms to access cash lump sums, Just has warned. Just Retirement and Partnership said that 2017 would see the highest ever number of people reaching 55, the age at which pension freedoms kick in.


Interest-only ‘prison’ to spur equity release

A flood of interest-only mortgage maturities in 2017 is set to ‘turbo-charge’ the equity release market, with one provider predicting demand will more than double over the year. The FCA has highlighted 2017 to 2018 as the first year in which a large number of interest-only mortgages sold would reach maturity and it estimates that almost half those with such a mortgage will be unable to pay the loan.


Scammers Pose as FSCS

The FSCS has warned consumers to “be on their guard” against an email scam promising a high-value payment. The compensation body said scammers were posing as the FSCS and attempting to entice consumers to provide personal information with the promise of a $5.7m (£4.5m) payment.


Scottish Widows unveils £30m workplace pension investment

Scottish Widows will invest £30m in its workplace pensions business to expand the range of products and services available to its workplace customers.


Cost of cyber crime to rise 40%

Financial services firms will be forced to spend millions more to guard against digital crime this year, as some industry professionals warn more needs to be done to educate businesses of the dangers.

For Financial planners the big risk is that you, or your staff, make an error that leads to a client falling victim to fraud.


What is your State Pension age

Key points from an Age UK document entitled “Later Life in the UK” published in 2016 serve to illustrate just how things have changed and are still changing. With a UK population of 65.3 million:-

  • 6 million people are aged 65 or over
  • Over 1.5 million are aged 85 or over
  • The number of centenarians living in the UK has risen by 72% over the last decade to 14,450 in 2014
  • UK life expectancies at age 65 are 85.9 years for women and 83.4 years for men
  • By 2040, nearly 1 in 4 people will be aged 65 or over
  • The proportion of the population aged over 75 is projected to double in the next 30 years
  • Nearly 1 in 5 people will live to 100, including 29% of people born in 2011.

Pension Contributions by age per £10,000 per annum of retirement income

Current Age State Pension Age Approximate monthly contribution required per £10,000 of income*
20 68 £110
30 68 £165
40 67 £275
50 67 £510

* Contribution assumptions – Level before 20% basic tax relief
* Growth assumptions – Capital growth of 6% net of charges
* Income assumptions – At-retirement gross income before tax: adjusted for 2% inflation; 6% annuity rate; no tax free lump sum taken.

Increasing life expectancy means the State Pension Age goalposts could move even further away in the future, with people working into their 70’s and 80’s to make ends meet.


Conditions re Pension Advice Allowance

Can be used a total of three times, only once in a tax year, allowing people to access retirement advice at different stages of their lives, for example when first choosing a pension or just prior to retirement.

  • Will be available at any age, allowing people of all ages to engage with retirement planning.
  • Can be redeemed against the cost of regulated financial advice, including robo-advice as well as the traditional face-to-face advice.
  • Will be available to holders of defined contribution pensions and hybrid pensions with a defined contribution element, but not defined benefit or final salary type schemes.

Auto enrolment – Review by Department for Work and Pensions

The DWP is conducting a review of auto-enrolment considering three themes, coverage, engagement and contributions.

Coverage – Consideration is being given to changes in the current earnings trigger of £10,000, age criteria and self-employed.

Engagement – Informing individuals that state pensions will not be sufficient in their retirement, employers matching contributions, people have a responsibility to fund their retirement.

Contributions – Rates need to rise above the 8% minimum planned for 2019, learn from the US experience of timing contribution increases with wage rises.

Majority of consumers see value of financial advice

Financial advisor

More than half of consumers believe they would benefit from seeking financial advice, according to a report out October 28th.

The research from unbiased.co.uk found that 52% of Brits think they would benefit from seeking whole of market financial advice.

This sentiment is especially strong among the younger generations, with only 6% of people in their 30s saying they do not think they would benefit at all from receiving advice.

Private pensions, mortgages and stocks and shares ISAs top the nation’s wish-list of areas they would like help on from a financial adviser, with the UK’s 20 and 30 somethings placing mortgages as the number one area they would consider seeking advice for.

For the ‘at retirement’ generation (60-69 year olds), annuity purchases topped the list.

Despite concerns over the impact of the Retail Distribution Review (RDR) on the demand for advice, unbiased.co.uk, which lists details of over 25,000 advisers on its online ‘find an adviser’ search, has seen a strong demand for whole of market advice since the start of 2013.

The website has reported an 18% increase in visitors to its ‘find an adviser’ search, year on year.

Karen Barrett, chief executive of unbiased.co.uk, said: “Our research has brought to light the fact that consumers see a clear benefit in seeking whole of market advice, which is a really encouraging sign. Most people wouldn’t consider fixing their car or doing legal work for their house purchase without professional help, so why should finances be any different?”

Unbiased.co.uk has re-vamped its ‘find an adviser’ checklist to help consumers find the right adviser for their needs.

Barrett added: “A qualified expert can help you make the right choices on some of the most important decisions of your life, can save you time and money and can give you confidence that your finances are being looked after well.

“Like all other professional services financial advice will cost you money but the ongoing benefits outweigh the cost. Each of us has different financial priorities and a chat with an adviser using our checklist can be the first step in helping you identify the ‘right’ financial adviser to tackle your finances.”

If you would like our tailor-fit financial advice, contact us. 

Source: IFA Online