Can Step-Children use IHT Allowances?

My wife and I married later in life and we both have children from earlier marriages. We are comfortably off and our house is worth about a ￡1m in the current market.

At the moment our wills say that the one who is left when the first of us dies will inherit everything and then when he or she dies, the estate will be shared equally between our children.

I gather that we get an extra inheritance tax allowance for leaving our home to our own children.

Do we lose that if we are passing some of our estate to each other’s children??

The RNRB

Your question is on the residential nil rate band, RNRB – a tax-free allowance worth ￡175,000.

The effect of the RNRB is a potential ￡140,000 is a reduction your family’s inheritance tax bill. ?To qualify for this allowance the deceased must have had residential property and the portion of the estate on which this allowance is being claimed must be passed to lineal descendants.

Typically, when describing the RNRB, I use the term ‘children’, because I’m talking to people who’re leaving their estates to their children, I use the term children because typically, I’m giving advice, and advice, like medical treatment, is individual enterprise - but the legislation uses the term ‘lineal descendants’. The terms lineal descendants is broad, and to our purpose includes stepchildren.

The stepchildren of your family would be eligible to benefit from this allowance.

Your Wills?

However, despite the scant detail, the way you describe your wills leaves scope for argument among your family and your family would pay more inheritance tax than is necessary – at the very least they'd be paying ￡20,000 more than necessary.

?In my experience, I would be surprised if there were no inheritance fights in your family.

Redundant Question

The answer to your question is in the negative… but if yours had been a properly planned estate, or your will, for the want of a less hackneyed phrase were ‘fit for purpose’, 99 times out of hundred, you’d not be asking this question.

In for a Penny in for a Pound

I’d recommend you consulted an estate planner practiced to set you on the right path to keeping as much of your money as the law allows.