Inheritance tax: What’s changing – and how can you save thousands of pounds
Back in 2016, then-Chancellor of the Exchequer, George Osborne, announced as part of the annual Summer Budget, a tax break that would put many families in a more favourable stance when it came to passing on property after death.
Perhaps known as the most controversial, Inheritance Tax (IHT) is payable upon death and is relative to the value of the deceased individuals entire estate. This may include any property, cash or other assets and valuables and has netted the Treasury around £5.6 billion in the tax year 2018/19. This is around double that of ten years earlier, when HMRC data showed IHT to be around £2.8 billion in the tax year 2008/09.
As it currently stands, an individual’s IHT nil rate band – i.e. the threshold allowed before the tax is applied – is set at £325,000, and, that is frozen until the end of the 2020/21 tax year. With the constant rise in property values, however, it is easy to see how many families were quickly falling victim to the tax; so, the Government threw in a lifeline.
The new Residence Nil Rate Band (RNRB) of Inheritance Tax was introduced from April 2017 and has been phased in gradually over the past few years. It means that by April 2020, not only will any individual have an additional £175,000 to add to the existing Nil Rate Band, married couples, may see up to £1 million of IHT relief.
What’s the catch? There isn’t one, however claiming this relief is not always straightforward and the calculations can be complex. The criteria is that when you die your family home is passed to ‘direct descendants’. This can include any children, grandchildren or adopted children when the deceased’s estate in total is less than £2 million. Above that threshold, tapering will apply.
What does it mean for families? Well, it means that married couples leaving a family home to any direct descendant from next year will be able to do so – and shelter up to £1m from Inheritance Tax under the new RNRB.
As with anything, careful estate planning is always advised and that includes any associated documentation. Always consult with a solicitor for any advice relating to making a will or power of attorney and make sure any documentation is up to date.
If you would like any further information about your will, contact the Private Client team at Downs Solicitors to see how we can help.