Changes to Inheritance Tax Rules
- AuthorHelen Newson
In Wednesday’s Budget, the Chancellor announced measures to increase the amount that people can leave which will be free of inheritance tax (IHT) on their death, as the Government had pledged in its election campaign.
On the face of it, the announcement appears to introduce the Government’s promise to increase the total that couples can leave to their families tax free to £1 million, but as always the devil is in the detail.
At present, couples who are married or in a civil partnership can jointly leave up to £650,000 which is free of IHT. The new measures introduce an additional nil rate band which will apply where a residence is passed to direct descendants on death. The new tax-free amount will be introduced from April 2017 and increases gradually from £100,000 per person up to £175,000 in the tax year 2020 to 2021.
The new rules will only apply to individuals or couples leaving their residence to direct descendants, ie children, or their lineal offspring, although there are provisions to assist a person who has downsized or ceased to own a residence. There will be a tapered withdrawal for large estates of above £2 million pounds.
This will be seen by many as a welcome change, in particular for those who live in areas where residential property prices are at a premium.
That said, the measures do not assist those leaving a residence who do not have children, and practitioners in this area await guidance as to how it may affect those who, for a whole host of reasons, share their estate between family members other than their children, or where a property may be left in trust for an incapacitated family member.