The Budget announcement saw the Chancellor George Osborne unveil inheritance tax changes to the current regime. George Osborne confirmed that the inheritance tax threshold is set to increase from £325,000 to £500,000 for a single person and from £650,000 to £1million for a married couple or civil partnership.
What is the current Inheritance Tax regime?
Inheritance tax is currently charged at a rate of 40% on the value of an estate above the tax free threshold of £325,000 per person.
Married couples and civil partners are entitled to combine the allowance allowing them to pass on assets to their children or other relations worth up to £650,000 before any inheritance tax is payable.
How will this change?
The additional "main residence" nil-rate band will be added to the existing £325,000 from 6 April 2017 and will be phased in with £100,000 being added in April 2017 and an additional £25,000 being added each year thereafter until it reaches £175,000 in April 2020.
The changes will mean that from April 2020 individuals will be able to pass on assets worth up to £500,000, including an interest worth more than £175,000 in a home, to your children or grandchildren without paying inheritance tax at all. For married couples, or civil partners, the allowance is combined allowing a total of £1million.
Those who chose to downsize will not lose any of the allowance from property they used to own. It is important to note that the increase in allowance will apply only to the value of the main home left to children or grandchildren, and not to any other wealth e.g. money and possessions. It will also not apply to estates worth more than £2million.
What next?
The changes will begin to come into effect from 6 April 2017 with the full increased threshold being available from April 2020. The new allowance is in addition to the existing £325,000 threshold which the Chancellor advised will remain fixed until the end of 2020/21.
The press coverage is far from detailed on the topic at the moment and the devil will, of course, be in the detail. If you would like further information on this inheritance tax changes or would like to begin inheritance tax planning, please contact our experienced team who will be happy to help.
