13 July 2015

Summer Budget 2015 - Inheritance Tax

One tax change George Osborne had been unable to make in coalition was to Inheritance Tax (IHT). The Budget puts that right. There is now a "Main residence nil rate band" - otherwise known as the "family home allowance". 

This is NOT a million pound IHT allowance, but is an additional allowance of £100,000 per person (initially) on top of the current £325,000 allowance. The additional allowance will only apply to a property which had been the deceased's main residence at some point. In addition it will only apply if the property is left to children or grandchildren - although there will be some protection if the property is sold from now, for example to downsize or move into residential care.

Eventually, and in certain circumstances, it will be possible to have assets to the value of £1m passed on within the IHT allowance. But that won't apply until 2020, and only if both of a couple are able to fully use their allowances, and only if the total estate value is less then £2m. For many people it would be risky to rely on, and existing IHT mitigation approaches should still be considered.

Rather than the complications of an additional allowance which only applies to certain assets, it would have been easier to have had the main allowance extended (instead of fixing it to 2021). However, my job as an adviser is to apply the rules effectively for my clients, not to make them!

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