The new inheritance tax proposals

//The new inheritance tax proposals

The recent budget has been described as one of the most progressive for years and one of the headline grabbing changes relates to the passing on of family homes and inheritance tax. From April 2017 if you own a property worth up to £1m you will be able to leave it to children or grandchildren completely free of inheritance tax. The following is taken from the Daily Telegraph’s report on the existing rules and how the new proposals will work.
In his budget speech on the 8th July 2015, Chancellor George Osborne announced that he will raise the inheritance tax (IHT) threshold from £325,000 per person to £500,000. This means that married couples and civil partners will be able to pass on assets worth up to £1m, including a family home, without paying any IHT at all.

Thousands of home owners have seen the value of their properties soar in recent years, particularly in London and the south east, thanks to a buoyant property market. This has raised concerns for many about the amount of tax their estate will incur after their death.

What are the rules now?

IHT is currently levied at a rate of 40pc on the value of an estate above the tax-free threshold, which has been frozen at £325,000 per person since 2009. Married couples and civil partners are entitled to double the allowance, passing on assets to their children or other relations worth up to £650,000 before a tax charge is triggered.

How will this change?

The Government will add a “family home allowance” worth £175,000 per person to the existing £325,000 tax free allowance from April 6, 2017. This means that individuals can pass on assets worth up to £500,000, including a home, without paying any IHT at all. For married couples and civil partners, the total is £1m. This additional allowance will be gradually withdrawn for estates worth more than £2m. The Conservatives first mooted its plan to raise the IHT threshold in 2007 and it was included in its 2010 manifesto. However the Liberal Democrats quashed any changed to IHT during the Coalition government.

What if I downsize my home?

Anyone who wants to downsize to a smaller property will be eligible for an “inheritance tax credit” so that even if they sell an expensive property they will still qualify for the new threshold providing the bulk of the estate is left to direct descendants. This is an attempt to encourage pensioners to free up larger properties for growing families.

How much will I pay?

Hargreaves Lansdown has calculated how these changes will affect you, depending on the size of your assets.

 

Single person

Value of family home  Value of other assets Value of the estate IHT liability now IHT liability from April 2017
£175,000 £175,000 £325,000 Nil Nil
£200,000 £300,000 £500,000 £70,000 Nil
£250,000 £400,000 £650,000 £130,000 £60,000
£400,000 £600,000 £1,000,000 £270,000 £200,000
£750,000 £750,000 £1,500,000 £470,000 £400,000
£1,000,000 £1,000,000 £2,000,000 £670,000 £600,000

Married couple

Value of family home Value of other assets Value of the estate IHT liability now IHT liability from April 2017
£175,000 £175,000 £325,000 Nil Nil
£200,000 £300,000 £500,000 Nil Nil
£250,000 £400,000 £650,000 Nil Nil
£400,000 £600,000 £1,000,000 £140,000 Nil
£750,000 £750,000 £1,500,000 £340,000 £200,000
£1,000,000 £1,000,000 £2,000,000 £540,000 £400,000
2018-02-27T15:44:01+00:00