The new rules that remove millions of family homes from inheritance tax have now taken effect.
From April 5, each individual can claim an additional allowance of £100,000 to offset the sale of a family home on death, on top of their existing £325,000 inheritance tax exemption. This new tax allowance will rise to £175,000 by 2020, allowing a couple to pass on an estate valued at or under £1m tax-free.
Not everyone will benefit as the increased allowance will not be available to those without children and there will be a taper applied to those with estates worth more than £2m.
To claim the new allowance, you must leave a property in your estate which you must have lived in it as your main residence at some point. A property that has always been a buy-to-let, for example, will not qualify.
The new allowance is available only when estates are directly inherited by children, stepchildren, adopted children or grandchildren. It will not apply if property is left to brothers, sisters, nieces or nephews.
The limit increase creates more tax efficiency following on from recent changes to pension planning where pensions can also be passed on to future generations tax-free.
Given that during the tax year ended on the 5th April 2016 HM Revenue and Customs declared a record £4.6 billion in inheritance tax takings there has never been a better time to consider your own planning.
Inheritance tax is simply no longer just a tax for the wealthy. The most important thing to do is examine whether you’ll pay inheritance tax and what to do about it. As always we believe that advice is essential.
If you would like advice or further guidance on Inheritance Tax Planning or any other financial matter then please contact our office today to arrange a FREE initial consultation.