New Inheritance tax rules explained

Inheritance tax changes - Budget 2015

In the Emergency Budget 2015 George Osborne announced changes to the inheritance tax (IHT) rules including a new inheritance tax allowance taking effect from April 2017

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• the ' family allowance' will be gradually withdrawn for estates over £2million at the rate of £1 for every £2 over the £2million valuation mark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'