We wrote an article last month talking about the how the Conservative Government planned to introduce a secondary ‘family home’ allowance for Inheritance Tax (IHT).
Following the Budget last Wednesday, George Osborne set out how this might work as part and parcel of his five year plan ‘to keep moving us from a low wage, high tax, high welfare economy; to the higher wage, lower welfare country’.
What does this mean for you?
This additional nil rate band looks set to be available from 2017. It will be applied to property in which a deceased has lived, and that passes to direct descendants, such as children or grandchildren.
The allowance will initially be set at £100,000 (2017/18), and will rise in stages to £175,000 in 2020/21. It will then increase in line with the consumer price index from 2021/22 onwards.
Just like the standard nil rate band, any unused ‘family home allowance’ will be able to be transferred to a surviving spouse or civil partner. This means that if each spouse or civil partner has a standard nil rate band of £325,000, plus the family home allowance of £175,000, their estate would have to be worth more than £1 million before Inheritance Tax starts becoming payable.
What if I have to sell my house to pay for care?
If a person downsizes or stops owning a home on or after 8 July 2015, assets of an equivalent value (up to the value of the family home allowance) can still be taken into account. How this will work in practice however has yet to be debated and finalised, and we expect to hear more of these technical aspects in the Finance Bill 2016.
There will be tapered withdrawal of the family home allowance, for estates worth more than £2 million.
With respect to the standard nil rate band, this is now frozen at £325,000 until 2021.
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