Following George Osborne's recent emergency budget the 8th July 2015 you may have heard about some changes that are being made (starting on the 6th April 2017) to the amount you can leave to your family before any inheritance tax is due. For the majority of people their largest asset is their home and there are some huge savings due to the changes so we thought it relevant to share what the new rules are.
Inheritance tax (IHT) nil rate band
The IHT nil rate band (your individual allowance on which there is no IHT due) is currently frozen at £325,000 until April 2018. This is to remain frozen until April 2021.
IHT and the main residence nil rate band
A new additional nil rate band is to be introduced where a residence is passed on death to direct descendants such as a child or a grandchild. This will initially be £100,000 in 2017/18, rising to £125,000 in 2018/19, £150,000 in 2019/20, and £175,000 in 2020/21. It will then increase in line with CPI from 2021/22 onwards.
The additional band can only be used in respect of one residential property which has, at some point, been a residence of the deceased.
Any unused nil rate band may be transferred to a surviving spouse or civil partner. It will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to the value of the additional nil rate band, are passed on death to direct descendants.
This element will be the subject of a technical consultation and will be legislated for in Finance Bill 2016.
This new additional allowance will be gradually withdrawn for estates worth more than £2m.