Inheritance tax changes - Budget 2015
What are the current inheritance tax rules?
- currently an individual can pass on assets of up to £325,000 free of inheritance tax
- married couples and civil partnerships can transfer any unused inheritance tax allowance following the death of a partner, raising the potential IHT tax-free allowance to £650,000 for the surviving spouse
- any assets over the above figures are taxed at a rate of 40%
What changes have been made to inheritance tax rules?
- the current inheritance tax threshold remains at £325,000 per individual
- there will be an extra 'family home allowance' of £175,000 per person added to the current threshold of £325,000. Theoretically this means that an individual will be able to pass on assets worth up to £500,000 as long as it includes their main residence. The property has to be passed on to children or grandchildren. Spouses can still inherit any unused inheritance tax allowances from a deceased spouse which means that it is possible for them to pass on £1million free from inheritance tax
When will the new inheritance tax rules be implemented?
- the 'family home allowance' will be phased in and set at £100,000 in April 2017, rising by 25,000 each year reaching the maximum of £175,000 by 2020
- the ' family allowance' will be gradually withdrawn for estates over £2million at the rate of £1 for every £2 over the £2million valuation mark
What happens if I don't own a property?
- if a person is not a homeowner then the 'family home allowance of £175,000 is not available
What if I want to downsize my property?
- anybody who from now downsizes their property for whatever reason will still be able to retain the £175,000 'family home allowance'