Once known as Death Duties and then Capital Transfer Tax, this is
still thought of by many as a tax which applies only to the very
wealthy. This is not the case.
The Inheritance Tax "nil rate band" is £325,000 and will be frozen
at this level until at least 2017. This is an annual allowance and a spouse or Civil
Partner can be transferred to their individual
allowance after death (providing no lifetime transfers
occurred 7 years prior to first death and there was no distribution
of the nil rate band on death) doubling the available nil rate band
to £650,000 which could be used to reduce the estate's potential
Inheritance Tax bill.
The transfer must be applied for and is not automatic - the remaining spouse/Civil
Partner will need to apply to the Inland Revenue by using
Family Home Allowance
The Government will add a “family home allowance”, eventually worth
£175,000 per person, to the existing £325,000 tax free allowance
from April 6th 2017.
This means that if you own a property worth up to £1m you will be
able to leave it to children or grandchildren completely free of
inheritance tax from April 2020. However, if a couple have no
children this allowance cannot be utilised.
This additional allowance will be £100,000 in 2017/18, £125,000 in
2018/19, £150,000 in 2019/20, and £175,000 in 2020/21. This will
allow individuals to pass on assets worth up to £500,000, including
a family home, without paying any Inheritance Tax at all. For married couples
and civil partners, the total is £1m.
This additional allowance will be gradually withdrawn for estates
worth more than £2m.
Anyone who wants to downsize to a smaller property will be eligible
for an “inheritance tax credit” so that even if they sell an
expensive property they will still qualify for the new threshold
providing the bulk of the estate is left to direct descendants.
The transferable nil rate band does not apply to co-habitees and so
a Discretionary Trust in your Wills could save your estate up to
£130,000 in tax.
Align Wills and Trusts can
help you with this procedure and ensure that your beneficiaries do
have the opportunity to use both of your nil rate band allowances to
reduce any potential Inheritance Tax liability.