Last week, during the Budget, the Chancellor formally announced a key change to Inheritance Tax (“IHT”) that would take affect from 2017.
Essentially, the Budget changes provide an extra Nil Rate Band where the estate includes the family home which is to be passed to direct descendents.
Currently everyone has a Nil Rate Band of £325,000 which is exempt from IHT on their death. Any unused Nil Rate Band is transferable to the surviving spouse which means that for a married couple if their combined estate does not exceed £650,000 then there is no IHT to be paid on their estates.
The extra Nil Rate Band is being phased in from 6 April 2017 at the rate of £100,000 per person rising to £175,000 per person in the 2020-2021 tax year. The unused portion of the individual £500,000 band can also be transferred to the surviving spouse. This means that from April 2020 a married couple will not have to pay any IHT if their combined estate does not exceed £1,000,000, providing that this includes a property worth at least £350,000 being passed to direct descendents. The extra Nil Rate Band can only be used for the family home.
The proposal is also intended to include provisions where the deceased had downsized although we await the specific details of the legislation.
Kathryn Wheeldon, Solicitor at Banner Jones says “The measures are likely to have a far bigger impact in the South East of England where house prices are far higher. In North Derbyshire, South Yorkshire and Nottinghamshire the measures will have some impact however the vast majority of the estates we deal with are not subject to IHT. The changes do however highlight the need for everyone to not only make a Will but to review their Wills on a regular basis. House prices change and we recommend that people review their Wills every 5 years to ensure that they are tax efficient or earlier if their personal circumstances change.”
Banner Jones Solicitors
Tel: 01246 560560