Pushed on whether this was £1m per individual or £1m per couple, shadow cabinet ministers were a trifle vague but it was a neat headline that captured public imagination and spooked the new Prime Minister, Gordon Brown, into abandoning thoughts of an early election.

On to 2010 and George can drop his Shadow prefix but in the course of his first stint in power the magic £1m fails to arrive on the statute books during the full term of Parliament.

Disappointing, but there was an understandable defence. Coalitions mean compromise and the Liberal Democrats took an entirely different view on what should constitute an estate tax so this ambition was foiled.

So, fast further forward to July 2015 and the first true Conservative budget for 18 years. George announces measures that add up to a £1m nil rate band for a couple and the following days news headlines gave him the plaudits accordingly. Now it would be churlish to ‘cock a snook’ at any tax allowance provided to us but a cursory glance at the underlying details show that the headlines were illusory and need proper attention by anybody whose estate exceeds or might be expected to exceed the existing nil rate band of £325,000 (or £650,000 for couples with qualifying transferable allowance).

What’s new?

Let’s first give a précis of the new main residence nil rate band (RNRB):-

This measure introduced an additional nil-rate band when a residence is passed on death to a direct descendant.

This will be:

• £100,000 in 2017 to 2018
• £125,000 in 2018 to 2019
• £150,000 in 2019 to 2020
• £175,000 in 2020 to 2021

It will then increase in line with Consumer Prices Index (CPI) from 2021 to 2022 onwards. Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner.

The additional nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.

There will be a tapered withdrawal of the additional nil-rate band 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.

The existing nil-rate band will remain at £325,000 from 2018 to 2019 until the end of 2020 to 2021.

Consequential considerations

The headline grabbing aspect of the above, of course, is that by adding together the existing nil rate bands to the new RNRB, couples will have an aggregated £1m allowance threshold by 2020/21.

This cute, ensuing headline, may lead to complacency as intuitively people will consider their estate shy of an inheritance tax liability but later find the underlying complexities of the new legislation will mask their true position.

Let’s just touch on a couple of aspects to illustrate.

Many people will have prudently taken steps to protect their estate in the past by writing their house into a discretionary will trust. To qualify for RNRB, however, the home has to pass directly down the family line (either absolutely or as an immediate post-death interest) or the allowance is not granted. It is important therefore that wills in particular are re-visited to make sure that they still have maximum relevance.

Thinking ahead is also very important. Inheritance tax planning is too often based on current rather than projected liability. With the new tapering away aspect to RNRB, plans should consider life expectancy and property growth factoring to consider the liability that may have to be met.

No, I don’t know why George didn’t simply adjust the basic nil rate band threshold either but I do know that in this particular area of financial planning he has made it more important than ever to take professional advice.

Eddie O’ Gorman is managing director of The WAY Group

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