Many estates will not now pay Inheritance Tax ~ a new property threshold was introduced in July’s budget….
The Government will introduce a new Inheritance Tax (IHT) nil rate band of up to £175,000 per individual (i.e. a further £350,000 for a married couple) where the family home is passed to children or grandchildren. This is in addition to the current nil rate band of £325,000 which has been frozen since 2009 and will remain frozen for the next 5 tax years, until the end of 2020/21. Please note that all information in this article has been taken from Standard Life and The Telegraph: http://techzone.adviserzone.com/anon/public/1_cutting_edge/TS_080715 http://www.telegraph.co.uk/finance/personalfinance/how-budget-affect-me/11722864/Budget-2015-How-inheritance-tax-changes-might-affect-you.html Who will benefit The extra nil rate band will be fully available to anyone who:
- passes the family home to their children or grandchildren on death; or
- or had a family home, then downsized (passing on assets of equivalent value to children/grandchildren); and
- has an estate below £2M.
However, the full £175,000 won't be available until 2020/21. The allowance will first become available in 2017/18 at £100,000 and increase to £125,000 in 2018/19, £150,000 in 2019/20 and £175,000 in 2020/21. It will then increase in line with the Consumer Price Index (CPI). Like the existing nil rate band the new property nil rate band can be transferred between spouses or civil partners. This means a married couple could pass £1M in 2020/21 to their children tax free on death provided the family home is worth at least £350,000, saving £140,000 in IHT.
Who may miss out But not everyone will benefit from the additional IHT free allowance. Anyone with a net estate over £2M will begin to see their property nil rate band reduced until it is completely lost once the estate is over £2.2m (2017/18) £2.25m (2018/19), £2.3m (2019/20) or £2.35m (2020/21).
It will only apply to transfers to children and grandchildren. Meaning those without children will miss out. And it is not possible to use the exemption for lifetime transfers which may discourage some clients from passing on their wealth during their lifetime. Clients who could benefit from the property nil rate band may need to revisit their existing wills to ensure they continue to reflect their wishes and remain as tax efficient as possible. Below are examples demonstrating the potential impact of the changes: Married couple
|
Value of family home |
Value of other assets |
Value of the estate |
IHT liability now |
IHT liability from April 2017 |
| £175,000 | £175,000 | £325,000 | Nil | Nil |
| £200,000 | £300,000 | £500,000 | Nil | Nil |
| £250,000 | £400,000 | £650,000 | Nil | Nil |
| £400,000 | £600,000 | £1,000,000 | £140,000 | Nil |
| £750,000 | £750,000 | £1,500,000 | £340,000 | £200,000 |
| £1,000,000 | £1,000,000 | £2,000,000 | £540,000 | £400,000 |
Single person
| Value of family me |
Value of other assets |
Value of the estate |
IHT liability now |
IHT liability from April 2017 |
| £175,000 | £175,000 | £325,000 | Nil | Nil |
| £200,000 | £300,000 | £500,000 | £70,000 | Nil |
| £250,000 | £400,000 | £650,000 | £130,000 | £60,000 |
| £400,000 | £600,000 | £1,000,000 | £270,000 | £200,000 |
| £750,000 | £750,000 | £1,500,000 | £470,000 | £400,000 |
| £1,000,000 | £1,000,000 | £2,000,000 | £670,000 | £600,000 |
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