Passing on your home: the new rules
Whitebrook Wills - Friday, September 11, 2015
There will be a £1m inheritance tax break for families who own a property – although the changes and new complex arrangements have caused some confusion.
Instead of simply raising the tax-free threshold for everyone, the Chancellor announced in the summer budget a new allowance specifically for those who own their home and want to leave it to ‘direct descendants’.
Everyone is currently entitled to pass on £325,000 f wealth tax free (called the nil rate band) and any assets above this amount incurs an IHT charge of 40%. Married couples and civil partners are entitled to double this allowance (ie £650k) before tax is payable.
What’s new? From April 2017 the government is introducing an additional allowance for people who own their own home, called a ‘family home allowance’. It will eventually be worth an additional £175,000 per person which added to the existing allowance means property owners have £500,000 each, or the much publicised £1million.
It will be introduced gradually over four years, with the allowance worth £100k in 2017-18, £125k in 2018-19, £150k in 2019-20 and the full amount in 2020-21. However, estates that are worth over £2m will lose some or all of the family home allowance.
The family home allowance and taper relief will increase in line with inflation but the existing nil rate band will be frozen until at least 2020-21.
