Friday, 18 September 2015

Have I got a Million Pounds tax allowance?

The recent Budget introduced a new main residence allowance for Inheritance Tax (IHT)  which is due to start from April 2017.
Main Residence Relief
This led to some misleading headlines and many clients thinking that they had a £1 million Inheritance Tax Allowance – sadly, as with many things the Government announces, that’s not quite the truth.

The government's proposal is to introduce a main residence nil rate band that can be used in addition to your regular Nil Rate Band of £325,000. It only applies to your main residence at your death (although there is already a consultation in place to deal with people who may have downsized) and only then if you are passing it to a direct descendant. So if you are not a homeowner but have significant other assets the scheme probably won’t benefit you.

Key points
·         The new allowance will be an addition to the existing nil rate band will be phased in from 2017 with an allowance of £100,000 from April of that year rising to the full £175,000 by April of 2020.
·         The inheritors must be your children, step-children, or their descendants. Adopted and foster children also qualify.
·         Wealthier families will not benefit as the allowance is reduced if the net estate is over £2 million. The reduction is £1 for every £2 that the estate exceeds £2 million. So if an individual had a net estate of £2.5 million they would not benefit.

So what qualifies as your main residence?

Put simply it is your interest in a home that has been lived in as your main residence. If you have more than one residence then your executors or personal representatives can elect which one is to qualify.

Will it Happen?
The government seems committed to pushing this through and it is reasonable to assume that an additional allowance will come into place, but many commentators seem to think that the new allowance as suggested will be too complex to administer.

It has even led to suggestions that the elderly may upsize as the get older to make the most of inheritance tax allowances rather than the more traditional downsizing that we see as people age.

If you would like to know more about the changes that have been proposed, or about inheritance tax planning in general get in touch 01778 382723 or see our website www.will-probate.co.uk