Conservatives pledge to increase Inheritance Tax Nil Rate Band
Published byAnnie Pearson
At the time of writing, we're in a holding pattern following the general election campaign, awaiting the outcome. As always in such campaigns, though, promises have been made by all of the parties to make changes to tax.
In particular, the Conservative party has resurrected its previously shelved pledge to increase the Nil Rate Band for Inheritance Tax to £1m. Although a new £1m tax free allowance is attention grabbing, things are a little more complicated behind the headline.
At the moment an individual can leave up to £325,000 – the Nil Rate Band - to anyone he wishes without paying any Inheritance Tax. Bequests to a spouse or civil partner are entirely free of Inheritance Tax and don’t eat into that £325,000. If any of the Nil Rate Band isn’t used, perhaps because most of the estate has been left to a spouse, the remaining portion can be used to increase the spouse’s allowance.
The Conservative Party’s plan is to introduce a secondary allowance of £175,000, which can only be used against a main property which is left to your children. The eye-catching £1m figure is arrived at by looking at a couple, each with the standard £325,000 Nil Rate Band and the additional £175,000 Main Residence Allowance. (No name has been suggested for this additional tax free amount but for present purposes Main Residence Allowance seems reasonably clear.)
The Main Residence Allowance would be reduced if applied to properties worth £2m or over and removed entirely for properties worth over £2.35m.
Of course this is simply a proposal at this stage and as such it is not clear how the Nil Rate Bands would be combined with the Main Residence Allowance where the main property is worth below £175,000 but there are significant liquid assets, for example where someone has downsized. Any change would also have to clarify whether a property could be left to step-children or grandchildren without losing the benefit of the new allowance.
If you need help making the most of your tax free allowances to minimise your Inheritance Tax liability we can help.
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