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Inheritance Tax and the Family Home

Posted on Thursday, 24th September 2015 by

It has been announced that an increase to the value of the family home which may be left free of inheritance tax is to be increased.

family home

 

 

 

 

 

Who will this apply to?

 

This will apply to individuals with direct descendants who have an estate (including a main residence) with total assets above the Inheritance Tax (IHT) threshold (or nil-rate band) of £325,000.

This measure introduces an additional nil-rate band when a residence is passed on death to a direct descendant (outlined below).

The additional allowances available (on top of the £325,000 allowances for any assets) will be:

  • £100,000 in 2017 to 2018
  • £125,000 in 2018 to 2019
  • £150,000 in 2019 to 2020
  • £175,000 in 2020 to 2021

Downsizing or no longer a homeowner

 

The additional nil-rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil-rate band, are passed on death to direct descendants.

There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

When will the measure take affect?

 

countdown till affect

 

 

 

 

 

 

The measure will take effect for relevant transfers on death on or after 6 April 2017. It will apply to reduce the tax payable by an estate on death; it will not apply to reduce the tax payable on lifetime transfers that are chargeable as a result of death (e.g. on gifts typically made within 7 years of death).

The main residence nil-rate band will be transferable where the second spouse or civil partner of a couple dies on or after 6 April 2017 irrespective of when the first of the couple died.

  • The qualifying residential interest will be limited to one residential property but personal representatives will be able to nominate which residential property should qualify if there is more than one in the estate. A property which was never a residence of the deceased, such as a buy-to-let property, will not qualify.
  • A direct descendant will be a child (including a step-child, adopted child or foster child) of the deceased and their lineal descendants.
  • A claim will have to be made on the death of a person’s surviving spouse or civil partner to transfer any unused proportion of the additional nil-rate band unused by the person on their death, in the same way that the existing nil-rate band can be transferred.

If you would like any further information on how this new tax relief will affect you, please contact us and we would be happy to review your Will with you.

Talk to our legal team

The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.

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Leanne Hathaway - Tax and Trusts
Leanne Hathaway - Tax and Trusts
leanne.h@ehlsolicitors.co.uk 01455 274 170
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