Budget 2015: How do the new Inheritance Tax Laws Affect You?Posted on 27th September 2015 by Goodwins Family Law Solicitors
In July 2015, Chancellor George Osborne brought about an emergency Budget that concerned the Inheritance Tax threshold that was previously in place for UK citizens. This article will look into what changes have been made and how they might affect you.
Changes to the Budget
The current threshold is £325,000 per person and has been frozen at this amount since 2009. For married couples and couples in a civil partnership, this £325,000 threshold is doubled, so they can pass on assets to children or other relatives for a value of up to £650,000 without incurring any inheritancetax.
In this Emergency Budget, George Osborne has announced that he will be raising the £325,000 threshold to £500,000 per person from April 2020, so the joint allowance for couples will be £1million. This will include an additional £175,000 ‘family home allowance’, which means that if you own assets worth up to £1m you will be able to pass it on to your children or grandchildren in your will, completely free of tax.
The Current Concerns
For many homeowners, particularly those in London where prices are on a seemingly constant rise, there is a real worry about the amount of tax their estate will be subject to after their death. Before the emergency Budget, the Inheritance Tax rate was 40% on the value of an estate above the limit of £325,000 per person.
However, the Government’s ‘family home allowance’ will begin to alleviate this concern as it begins to take effect from April 2017, with incremental increases, as follows:
- £100,000 in 2017-18
- £125,000 in 208-19
- £150,000 in 2019-20
- £175,000 in 2020-21
For estates worth more than £2m, the ‘family home allowance’ will gradually be withdrawn.
When will it take effect?
The changes will come into effect gradually, as mentioned above.
Starting in 2017, a £100,000 ‘family home allowance’ will be added onto the existing £325,000 allowance. The ‘family home allowance’ will increase by £25,000 each year until the full stipulated amount of £175,000 is reached in 2020, bringing the total value of assets you can leave tax-free to direct relatives £500,000.
What happens if I downsize my home?
If you downsize your home, you will be eligible for an “inheritance tax credit”, which allows you to still qualify for the threshold, providing that if you sell an expensive property, the majority of the estate is left to direct descendants.
What about properties over £2m?
For estates worth more than £2m, £1 will be deducted from every £2 over the £2m value from 2017.
What assets are subject to Inheritance Tax?
Inheritance Tax is paid on a person’s estate after they die. The estate covers money and possessions, but the only assets that you pay Inheritance Tax on are assets over the value of £325,000. The assets that are subject to Inheritance Tax are known as ‘relevant property’ – money, shares, houses or land. Most property that is held in a trust counts as relevant property. There are a few exceptions to this rule, and they are as follows:
- When assets are placed in an ‘interest in possession’ trust and were placed there before 22nd March, 2006
- When the trust is subject to ‘transitional serial interest’ made between 22nd March 2006 and October 2008
- If the assets are put aside for a disabled individual
- If the assets have been set aside for a bereaved minor
- If the assets are put in an ‘18 to 25’ trust
If you would like to know more about Inheritance Tax claims or anything else regarding family law, please feel free to get in touch with us today and we will be more than happy to help you with anything you need.