With all the political upheaval going on recently you might be forgiven for having missed a big change to the rules around inheritance tax back in April. And while the introduction of the ‘main residence nil-rate band’ – or the ‘family home allowance’ as it is sometimes known – was low-key, the changes it makes could have a serious impact on you and those who might inherit from you.
So, here’s a quick guide to what changes have been made and what they might mean for you and your family.
An increased allowance
In a nutshell, April was the beginning of a new allowance that should ultimately allow couples to pass on a £1 million inheritance tax-free to their descendants. The normal £325,000 per person allowance on a main residence remains, but there is now an additional £100,000 per person – the so-called ‘main residence nil-rate band’, or the ‘family home allowance’ allowed on top of this.
So what does this mean for individuals looking to pass something on to their descendants? Well, each individual can now pass on £425,000 without paying any inheritance tax – however this must includes the family home must pass directly to children or grandchildren (it doesn’t count if you use a discretionary trust).
Who this will impact
So will you be affected? According to Gov.uk, changes will apply to anyone who has direct descendants who has an estate (including a main home) with assets that are worth more than the Inheritance Tax (IHT) threshold (or nil-rate band) of £325,000. And what about the tax-free £1 million for your descendants that we mentioned earlier? Well, the government is planning to phase the new allowance in, increasing it by £25,000 a year until it reaches £175,000 in April 2020.
So, by 2020 each individual will have a £500,000 allowance – meaning that between them a couple would be able to pass on £1 million tax free to their kids or grandchildren. It’s also worth mentioning that after the first death, any unused allowance will be passed on to the surviving partner.
If you have any more questions about these changes to inheritance tax and how they might apply to you, then please just get in touch to find out how we can help.