Chancellor George Osborne used his 8 July Budget to announce a widely trailed measure to take more family homes out of inheritance tax (IHT).
Mr Osborne said that IHT – levied at 40 per cent on estates worth more than £325,000 – was originally designed to be paid only by the very rich, adding: “Yet today there are more families pulled into the inheritance tax net than ever before – and the number is set to double over the next five years. It’s not fair and we will act.
“From 2017, we will phase in a new £175,000 allowance for your home when you leave it to your children or grandchildren. It sits on top of the existing £325,000 threshold, which will be fixed until the end of 2020-21. Both allowances can be transferred to your spouse or partner.”
The effect of the new allowance – called the main residence nil rate band – will be to create an effective IHT threshold of £1 million by 2020-21.
The main residence nil rate ban will be set at £100,000 in 2017-18, up to £125,000 in 2018-19, up to £150,000 in 2019-20, and up to £175,000 in 2020-21.
The band will also be available when a person downsizes or no longer owns a home on or after 8 July 2015 and assets of an equivalent value, up to £175,000 in 2020-21, are left to direct descendants on their death. The main residence nil rate band will be withdrawn on a tapered basis for estates with a net value of more than £2 million.
The new measure will be welcomed by many people whose estates would be otherwise subject to inheritance tax, but anyone who believes their estate may be vulnerable to IHT in the future would be wise to seek expert advice.
Moore Thompson’s experts are experienced in helping people plan ahead to minimise inheritance tax liabilities by identifying IHT solutions tailored to personal circumstances and goals. For more information, please contact us.