On the 8th of July 2015, George Osbourne presented his Summer Budget to Parliament. In his speech, the chancellor announced that he will raise the Inheritance Tax (IHT) threshold, bringing hundreds of thousands of families out of the Inheritance Tax net altogether.
Currently, Inheritance Tax is charged at 40% on estates over the tax-free allowance of £325,000 per person. 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.
It has been decided that, from April 2017 the total IHT threshold will steadily increase until it reaches £500,000 per person in 2020. 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. In addition, married couples and civil partners can pass any unused allowance on to one another.
The Chancellor said in his budget speech that the wish to pass something on to your children is “about the most basic, human and natural aspiration there is”.
What these changes mean, in a nutshell:
A single person with a home worth £200,000 and other assets worth £300,000 would pay £70,000 in inheritance tax under today’s rules. Following the changes, however, they would be taken out of the IHT net completely.
A couple with a £750,000 house and £750,000 of other assets would see their bill fall from £340,000 today to £200,000 under the new rules.
There are however strict guidelines in place. For example, the property must have been the main home at some point and must be left to one or more direct descendants. This includes children, stepchildren, adopted children and foster children, and grandchildren.
Also, if there is more than one property in the estate, only one will qualify for the family home allowance.
Additionally, the allowance will be gradually withdrawn for estates worth more than £2 million.
For a full understanding on where you stand with regards to Inheritance Tax, we recommend seeking financial advice.