Up until recently most married couples could leave assets up to a value of £650,000 to their children without having any liability to inheritance tax. Anything left to their children in excess of this amount triggered a tax of 40% on the value of the inherited estate which exceeded this value. This meant that anyone with assets (including their home) of say £1m would find that their children would have a tax bill of £140,000.
The good news is that thankfully the government recognises that the increased value of people’s homes over the years has led many people to be caught up in this tax. Consequently, they’ve announced some significant changes to the rules with the intention of potentially increasing the tax threshold before this tax is due, therefore reducing the amount to be paid.
These changes mean that the limit for assets that are taxable is to gradually change to allow an additional maximum £175,000 per individual to offset against the value of the family home for inheritance tax purposes. This effectively means that a married couple living in a house worth more than £350,000 will eventually have a limit of £1m before any tax is due when they both die. However, the value of the property would need to be over £350,000 for a married couple to each receive the increased maximum allowance of £175,000. If say the property was worth £200,000 the maximum allowance is £200,000 and therefore the overall limit to inheritance tax is £850,000.
These changes are only effective from April 2017 and are to be gradually phased in so that the limit is initially increased by £100,000, and then increased by £25,000 in each subsequent tax year up until April 2020 when the limit will be at £175,000 per person.
But a word of warning here, there are conditions that must be met to qualify for this allowance. For example, only one property owned can qualify for the allowance and the property must be passed to children (adopted or natural) or linear descendants on death.
I must also add that for those of you who have concerns over your family having a significant tax bill to pay when both parents die, don’t despair as there are several simple, tried and tested options which I have recommended over many years and are available to reduce or eliminate this tax.
