From 6 April 2017, a new family home allowance, known as the main residence nil-rate band (RNRB), is being introduced in stages. It will eventually provide an extra £350,000 worth of Inheritance Tax (IHT) free allowance for married couples or civil partners, meaning estates worth up to £1m could be passed on tax-free.

Currently the IHT nil-rate band is £325,000 but married couples and civil partners can pass this on to the surviving spouse meaning there’s no IHT to pay on the first £650,000.

Next week an additional allowance of £100,000 per person will be introduced for individuals where a main residence is passed to a direct descendant. This will effectively take the threshold at which IHT becomes payable to £850,000 for family beneficiaries.

The threshold will then increase to £125,000 in the 2018/19 tax year, £150,000 in 2019/20 and £175,000 in 2020/21.

Research from Old Mutual Wealth shows a staggering 70% still don’t know anything about the new IHT band and Rachael Griffin, financial planning expert at the firm, said: “With the new residence nil rate band coming into force next week, it is alarming that 70% still have no understanding of the new allowance.

“Even those who claim to have a good understanding of the residence nil rate band failed to correctly answer some questions on the detail of the new legislation. The lack of understanding around the new rules could result in people not structuring their will or their financial affairs in the most effective way.”

Below, Griffin explains five things you may not know about the new scheme:

1) You can select which property to have the allowance against

The rule can apply to any one home included in the estate as long as it was lived in by the deceased at some stage before the death. The home doesn’t even have to be in the UK. However, it does have to be within the scope of IHT and it must be included in a person’s estate.

2)  The allowance will still apply even if the property is sold

The government did not intend the RNRB to stop individuals from downsizing or selling their property. So a rule was added which means the value of the estate made from downsizing or disposal of the property is eligible for the allowance.

3) Any outstanding mortgage is deducted before applying the allowance

The value of the home for RNRB purposes is the open market value of the property minus any liabilities secured on it such as a mortgage.

4) The property must be left to direct descendants

To make use of the new allowance the recipient must be a child, grandchild or other lineal descendant or a spouse or civil partner of a lineal descendant. It’s important to note that direct descendants don’t include siblings, nieces and nephews or other relatives.

 5) The allowance increases

The RNRB will eventually allow up to £175,000 of property wealth, per person, to be passed on with no IHT liability. However, it is being phased in and in the 2017/18 tax year it will be £100,000.