2017 Budget Changes to Inheritance Tax: What does it all mean?


Following the release of the current Budget there has been a lot of talk about the proposed changes to Inheritance Tax (“IHT”). We have heard much about a rise in the “Nil Rate Band” (the amount of your Estate which can pass IHT free) to £1 million with the caveat that it applies to a “family home”.

At Lawindexpro we aim to make legal jargon as simple and understandable as possible so we have prepared the following brief points to note on the upcoming changes:

 

The Transferable Nil Rate Band

The Nil Rate Band for an individual is currently set at £325,000 per person and this will not change.

For those who are married or in a civil partnership, if you gift your estate to your spouse upon your death then your estate passes spouse exempt and no IHT is payable. Rather than your Nil Rate Band going unused, it can be transferred to your spouse so they can use your Nil Rate Band together with theirs so the have a new Transferable Nil Rate Band of £650,000 to apply to their estate upon their death. This too will remain unchanged.

 

What has changed?

The government have announced a new tax free “Main Residence” Band which can be used in addition to your existing Nil Rate Band when applied to your family home/main residence.

The new Main Residence Band can also be transferred from one spouse to another. The amount you can claim from 2017 as the new Main Residence Band is as follows:

For individual’s:                     For Married Couples or Civil Partnerships:

2017      £100,000             2017   £200,000

2018      £125,000             2018   £250,000

2019      £150,000             2019   £300,000

2020      175,0000             2020   £350,000

 

Where does the “£1 million exemption” come from?

When looking at married couples or couples in a Civil Partnership, it is possible to claim up to £1 million exemption from IHT when you add together the Transferable Nil Rate Band (£650,000) and the Transferrable Main Residence Band (£350,000) which will be available in 2020.

 

What if I downsize?

As from now, if you choose to downsize your property you can still claim the Main Residence Band as if you still owned the larger property.

 

So what is the catch?

If you are single you will not be able to claim the higher Transferrable Main Residence Band of £350,000 but instead will only be able to claim your individual Main Residence Band of £175,000.

If your property is worth considerably more than £1 million then you might not be able to claim the full Main Residence Band. For every £2 of value over £2 million, £1 is to be deducted from the new Band until the Band is depleted.

Further, you will only be entitled to the new Main Residence Band in the event you pass away in 2017 or later.

 

Summary

There are lots of benefits to the new Main Residence Band which aims to see 94% of Estates passing without paying IHT, however, as with any new scheme there are plenty of conditions to meet and hoops to jump through.

Lawindexpro will keep an eye on the finer details of this new scheme so we can keep all of you up to date with the latest news.

 

Please do not hesitate to contact one of our Private Client Team members on 0845 1124452