This article was published on March 20th, 2017
The new Inheritance Tax system appears at first glance to offer couples £1,000,000 tax free allowance but on closer inspection the devil is in the detail. The system is due to be phased in gradually in April and is not applicable before then.
The Tax system also only applies to people who are married or in a civil partnership at the time of death. The new inheritance tax system will not be available to co-habiting couples who are not married or in a civil partnership.
The rules relating to the new regime are actually quite complicated. For example, at the moment, inheritance tax is payable on death on assets which exceed £325,000 which is called the ‘nil rate band’. Anything above this is currently taxed at 40% but Executors have been able to apply to HMRC to add a proportion of the unused ‘nil rate band’ from one spouse or civil partner’s death to the other person’s allowance. In laymen’s terms, if you die with less than £325,000 in assets and don’t use the ‘nil rate band’ allowance, this can then be used to add to your partners/spouse ‘nil rate band’ allowance meaning that you have to have assets of over £650,000 before you pay inheritance tax.
The new regime takes into account the rise in property prices in the last few decades and has added £175,000 of property related allowance on top of the current £325,000 nil rate band threshold. This system will be phased in and be available from 2020-2021. This could mean that couples or civil partners get an extra £350,000 property allowance to add to £650,000 nil rate band.
Bottom line you may need to have assets, including property of over £1 million before you have to pay IHT. It is important to note that the property allowance is only available if the property is left to direct descendants such as children, grandchildren and step children. Childless couples would not have the benefit of the property related inheritance tax allowance. Couples who do not own property will also not benefit from the new system.
To find out if the new inheritance tax system will affect you and if so, when it will come in to effect, call us today on 0800 1979 345.
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If you would like to know more, or would like to book an initial FREE consultation, speak to us today, we are happy to arrange to visit you at home.