Those of you with a good memory may recall David Cameron’s promise back in 2007 to increase the Inheritance Tax threshold to £1million for married couples. The 2015 Budget finally realised this aim, but although the headlines look appealing it is worth bearing in mind that terms and conditions apply.
The new allowance, to be known as the “Residence Nil Rate Band” will increase an individual’s Inheritance Tax allowance from £325,000 to £500,000 on death, giving us the magic £1million figure for couples.
However, as Tom Rodgers, Solicitor at Sutton McGrath Hartley Wills & Probate explains, there are conditions which need to be taken into consideration:
“The Residence Nil Rate Band can only be set against property owned and occupied by the deceased, not assets generally, or buy-to-let or investment properties.
“The full allowance will not be available until April 2020. It can be claimed in respect of deaths from April 2017 onwards and will start at a rate of £100,000, increasing by £25,000 per year until the promised £175,000 is reached” Tom adds.
“It is only available if the property is passing down the generations to children or grandchildren (including stepchildren, adopted and foster children). Siblings and other relatives, unmarried partners and their children will all miss out.
“Finally, the property must pass directly to the children or grandchildren. Many types of trust funds for these relatives will not be eligible to claim the allowance” concludes Tom.
In summary, there are winners and losers. Those with no children, those with large investments who rent their home and those whose property only has a modest value will pay more tax than they might otherwise.
So, what action should you take? Firstly, review your will to ensure that it is structured in the correct way to maximise your tax allowances. Secondly, if you are considering moving house or downsizing in the future make sure you take advice beforehand to avoid paying more tax than you might otherwise.
Sutton McGrath Hartley is a multi-disciplinary firm of chartered accountants, financial advisers and lawyers offering comprehensive financial expertise for all business, personal and family interests. Our specialist departments can help with tax, wills, trusts and estate planning. To discuss your requirements please contact Tom Rodgers on 0114 266 4432 or firstname.lastname@example.org.