Will the Inheritance Tax change affect you? - Family Home Allowance

 

 

In response to concerns that families are being squeezed by ever increasing house prices and the frozen Inheritance Tax nil rate band of £325,000, above which Inheritance Tax is charged on estates at the rate of 40%, the Chancellor announced in the Budget, a new allowance if a deceased person had an interest in a property as their main residence at some point.  When combined with the £325,000 Inheritance Tax nil rate band, it will exclude from Inheritance Tax estates up to £500,000.  Subject to qualifying criteria, this will mean that married couples and civil partners will together be able to leave assets, including the family home of £1 million without incurring an Inheritance Tax liability.

 

The Family Home Allowance will be phased in from 2017.  In the tax year 2017/18, it will be worth £100,000 per person, increasing to £125,000 in 2018/19, £150,000 in 2019/20 and £175,000 in 2020/21. The value of the allowance will then increase each year to compensate for inflation.

 

In estates worth more than £2 million, the value of the allowance will reduce by £1 for every £2 by which the estate exceeds £2 million, until it ceases to be available for estates of £2.35 million and above. The property will also ultimately need to be left to the deceased’s children or grandchildren unless it is sold after budget day, when protections will be put in place to ensure that those who downsize or live in rented accommodation during their later years are not disadvantaged.

 

As with the existing Inheritance Tax nil rate band, spouses and civil partners will be able to make use of any unused allowance on the death of the surviving spouse/civil partner.

 

The Inheritance Tax nil rate band of £325,000 was due for review in 2019 although, will now remain fixed at this level until April 2021.  As with most things, the devil will be in the detail and further information will be available after the Finance Bill and, ultimately, the Finance Act.

 

If you would like advice regarding Inheritance Tax and how the changes might affect you and your family, please contact us to speak to a specialist solicitor in our Tax Trusts and Estates Team.