Summer Budget 2015: IHT threshold upped to £1m for couples

8 July 2015
The inheritance tax (IHT) threshold rise from £650,000 to £1 million for married couples passing on the family home was confirmed in today’s Budget. The move, which was outlined in the Conservative manifesto, will be effective as of 6 April 2017. At present, the beneficiaries of an estate must pay 40% tax on any portion of its value that exceeds the nil-rate band of £325,000 per person. The increased threshold effectively means couples will pass on a tax-free £350,000 home allowance to their beneficiaries. Almost one million properties in England, Scotland and Wales could benefit from the Chancellor’s decision to raise the IHT threshold, according to property website Zoopla. The change takes the total number of homes exempt from IHT from 26.33 million to 27.28 million – an increase of 953,498. Zoopla analysis revealed that Londoners stand to gain the most from the increased threshold, with 428,011 extra properties escaping IHT. And nearly 250,000 more homes in the South East would also be exempt. Maike Currie, associate investment director at Fidelity Personal Investing, said: “Read the Budget fine print and you will see the inheritance tax nil-rate band is currently frozen at £325,000 until April 2018 and this is where it will stay until April 2021. What the government is proposing is an additional band which will be introduced progressively – £100,000 in 2017/18, up to £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21. From 2021-22 onwards it will increase in line with inflation. “Given the rapid rise in the UK property market this increase is incremental. If you consider that the average price of a London property currently stands at just below £500,000, the inheritance tax bill facing those left behind could still be huge. “Moreover, far from being a ‘no-strings-attached’ IHT allowance, Osborne has wielded a double-edged sword, slicing pension tax relief to fund the rise in the inheritance tax threshold. The size of the annual allowance you can get tax relief on will be reduced from £40,000 to £10,000 for those earning over £150,000 a year. It’s a classic example of taking from Peter to pay Paul.” Gary Rycroft, solicitor and a member of the Law Society Wills and Equity Committee, added: “As well as being able to pass on £650,000 tax free to descendants, if your home is sold for £350,000 or less after your death, your surviving relatives will pay no inheritance tax on the sale.” However, he pointed out that there is concern if families need to sell a property to pay for long-term care then they will lose the £350,000 housing allowance. "I have many clients who would be affected by this,” sais Rycroft, who added, “if some of the value of some of the capital in the family home has been taken out under an equity release scheme, the full benefit of the proposed new IHT allowance may not be available.” He warned that thousands of people will be affected by this change and may need to re-structure their wills to make the most of the effective housing allowance. The changes to the inheritance tax allowance will be funded by a reduction in the pensions tax relief available to higher earners.

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