The recent Budget introduced important changes for inheritance tax (IHT).
As from 6 April 2017, a main residence nil rate band will be introduced.
The allowance will be £100,000 for the year 2017-2018 rising to £175,000 in the year 2020-2021 and is available, in addition to a current individual’s IHT free band of £325,000, for main residences passed on death to direct descendants.
The additional IHT free band can also be transferred between married couples and civil partners. subject to the second spouse or civil partner dying after 5 April 2017.
So, from April 2020, a married couple or civil partners will be able to leave an estate worth up to £1 million (assuming there is a family home being left to direct descendants) without there being an IHT liability. This is a substantial rise from the £650,000 currently available to such couples. IHT of 40% will apply to assets above this level. For estates with a value of more than £2 million, the additional IHT free band will reduce by £1 for every £2 over this threshold.
A person can also claim the extra IHT free band if they have downsized or sold their property on or after 8 July 2015 and the replacement assets are passed to direct descendants. This will therefore not penalise those who have to sell their property later in life in order to, for example, fund care home fees.
For those who own more than one property, their personal representatives will be able to choose which property should qualify for the additional relief. However, a property which was never lived in by the deceased (such as a buy-to-let property) will not qualify for the additional IHT free band.
Author: Elaine Lightfoot
DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. This article is merely a general comment on the relevant topic. If specific advice is required in connection with any of the matters covered in this article, please speak to McCormicks Solicitors directly.