In the 2015 summer budget George Chancellor announced that he has plans to change inheritance tax by adding an additional £175,000 ‘property allowance’ on homes that are passed down to children or grandchildren. This will be added to the current tax threshold of £325,000 which applies to all assets. Although these plans have been set to change in 2017 -2018 they may not take effect until 2020-2021. Many home owners have seen their property prices increase particularly in London and the south east which has raised a lot of concerns about how much inheritance tax will have to be paid on their estate when they die. The main worry of theirs being how their family will afford to pay their inheritance tax bill.
Currently the tax threshold is frozen at £325,000 anything over that is taxed at 40%. This means that if a person’s assets do not exceed £325,000 then they will be exempt from paying inheritance tax when passing on their assets to family members. Currently married couples and civil partners are able to double the allowance of £325,000 to £650,000 before tax is triggered.
The government has stated that this will not take effect straight away and the property allowance will eventually reach £175,000 however they have predicted that it will be worth £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21. This will allow individuals to pass on assets worth up to £500,000, including a family home, without paying any IHT at all.
As the rules about being able to double the allowance will still apply it means that married couples and civil partners could have l have a total allowance of £1m before being taxed. The rules have stated that for deaths prior to 6th April 2016 the existing rules will still be applicable, they have also stated that the new rule will only apply if the assets are being passed to children or grandchildren and not any other relatives.
If you found this article helpful we would recommend reading our previous blog, ‘Inheritance Tax – Gifting to reduce liability.’
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