Taking the Family Home Out of Inheritance Tax
In yesterday’s Summer Budget, the Chancellor announced his plan to do away with inheritance tax on family homes worth up to £1million.
The aim is to allow those who have worked hard for their homes to be able to pass them on to family members and to also combat Treasury figures which suggest that the number of people having to pay IHT will rise from 35,000 to approximately 64,000 by 2019, due to rising house prices.
Currently, IHT is payable at 40% on the value of an estate in excess of the tax free allowance of £325,000 per person and this allowance can be passed between married couples or civil partners, meaning a total tax free allowance of £650,000.
The new position, outlined by the Chancellor in his Budget, introduces a £175,000 “Family Home Allowance” which will gradually be introduced on top of the existing tax free allowance, taking the total transferable tax-free allowance to £1million by 2020. Estates worth £1million currently attract an IHT liability of £140,000.
The “Family Home Allowance” is a dedicated tax free allowance for the sole purpose of protecting the family home. IHT credit will be given to those couples who downsize to a smaller property after their children have left home, for example. The introduction of this tax credit is to be seen as an incentive for elderly people to move into smaller homes, during an acute shortage of housing in the UK.
This announcement comes as the UK Tax Office took in almost £400 million worth of IHT in April 2015, the largest ever amount for a single month. The monthly average for the last 10 years has been £260 million.
For more information on how the impending changes might affect you, please contact Susan Hoyle, Ian Macdonald or Kirsten Brass.
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