Ask the Expert: How do exemption tax redemptions work for step-children?

Carl Lamb, managing director of Almary Green

Carl Lamb, managing director of Almary Green


Our reader wants to know how inheritance tax exemptions can be applied to a will, when two of his children are step-children. Carl Lamb of Almary Green responds.

Having read your column last week, it’s prompted me to finally get around to sorting out my will and to work out how much IHT might be due on my estate.

My wife died four years ago and left everything to me: we had three children between us – all from our previous marriages as we didn’t marry till we were in our 50s.

I’m planning to leave everything equally to the three of them. Can you explain how the extra IHT exemption for our family home works in this case, given that two of the children are not mine?

Response from Carl Lamb of Almary Green:

The good news is that the IHT exemption in respect of the family home applies to step-children who are direct descendants of one of a couple who are married or in a civil partnership, so you can take advantage of this when leaving your home to all of them.

The Residence Nil Rate Band (RNRB) provides an extra slice of IHT exemption for families who pass the value of the family home down to direct descendants – so children or grandchildren – including not only step-children but also your children’s spouses or civil partners (even if the direct descendant has died), plus adopted and fostered children.

The value of the exemption available will depend on the value of the house up to a maximum set by the Government. Currently the maximum is £125,000 and it goes up to £150,000 in April 2019. Any unused RNRB can be passed on to a spouse or civil partner. Although your wife died four years ago, before the introduction of the RNRB in April 2017, you do get her RNRB entitlement transferred to you when you die, doubling up the amount of exemption you have available.

Do get independent advice if you are unsure of your future potential IHT liability: this is an area where good planning can really make a difference.

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