It has long been a concern of Government that families are being squeezed by ever-increasing house prices and the currently frozen threshold of £325,000 above which inheritance tax is charged on estates, at the rate of 40%.
Reflecting this concern, a new ‘family home allowance’ was announced in the Chancellor’s summer budget which, when combined with the £325,000 ‘nil rate band’, will by 2020 exclude from inheritance tax estates of £500,000. This means that married couples and civil partners will together be able to pass on assets, including the family home, of £1 million without incurring a tax charge.
The allowance will be phased in gradually. In the tax year 2017/18 it will be worth £100,000; then £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 the case of 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 worth £2.35 million or more.
To qualify for the allowance, the estate must include a property which has been the deceased’s main home and it must be left to one or more direct descendants. If there is more than one property in an estate, only one will qualify for the allowance.
Need advice? We are here to help.