Changes in Inheritance Tax – July 2015 Budget
The Tories’ long-promised changes in Inheritance Tax (I.H.T.) have finally been announced in George Osborne’s latest budget. The “headline” major change being that you will now be able to pass on your family home free of any I.H.T. provided it isn’t worth any more than £1m.
I.H.T. is payable on each and every individual’s Estate at 40% if it is valued above the I.H.T. threshold when they die. Currently this threshold, which is known as the “nil-rate band”, is set at £325,000 per person. This level was set some five years ago and is not changing.
A reduced rate of I.H.T. is available to persons who leave at least 10% of their Estate to Charity. This remains unchanged at 36%.
From April 2017, a new, transferable nil-rate band will be introduced. This will be known as the main residence nil-rate band BUT WILL ONLY apply when the main residence is passed to the individual’s children or grandchildren on or after death. The allowance will be worth up to £100,000 in 2017-18 rising each year thereafter until it reaches £175,000 in 2020-21 and will be additional to the current nil-rate band thereby creating a maximum of £500,000 per person.
Please be aware that married couples and civil partners are treated in a slightly different way in I.H.T. Their individual nil-rate band allowances are “transferable” – known as the spousal allowance – and no matter what the value of the Estate of the first to die passing to the survivor, no I.H.T is payable at that point. The allowance is held-over until the point at which the surviving spouse dies, then both allowances are considered together and jointly become liable to I.H.T. under the same terms as described above.