New Inheritance Tax Rules Means It’s Time to Look at Wills
There are new rules for the public and probate solicitors to get their heads around, with the Government having introducing a new inheritance tax, adding an extra tax free amount when you own a property.
This seems good for us all but, the new rules are not as straightforward as they seem. As things currently stand; everyone can give away the sum of £325,000 tax free on their death, which includes anything you own, be it in the form of property, cash, pensions or anything else.
This is called a “nil rate band”, with assets over this amount taxed at 40% before your loved ones get their inheritance tax planning. The Government have also introduced rules that allow everything passing to your spouse or civil partner to be tax free and you can also pass your unused nil rate band to them as an added perk. This means, that in a simple situation where you leave everything to each other on the first death, there will be no inheritance tax to be paid to the tax man.
Also, when the survivor dies they can give away their own nil rate bands and their deceased spouse/civil partner’s nil rate bands. This means they can give away £650,000 without paying inheritance tax. In legal terms, this is known as a “transferable nil rate band”. However, very shortly, from April 2017, the Government is introducing a new, additional tax-free allowance for people who own a home and this year the extra allowance will be £100,000.
The allowance will be then be increasing by £25,000 each year until it reaches £175,000 per person. So, when it’s all calculated and added to the £325,000 nil rate band, this means a new allowance for property owners of £500,000 – or £1m for couples using their transferable nil rate band mentioned above.
This additional relief is also transferable between married couples and civil partners, even if one spouse or civil partner dies before April 2017 when the new allowances officially come into force. However, there is a sting in the tale if you have assets above this level. You will lose some of this extra allowance as assets in excess of £2 million will have a tapered allowance and will not receive the full amount.
It is vital to know that to qualify for the new allowance, the house you intend to use it on must have been your main home at some point during your lifetime and you must leave it to “linear” descendants, which include children, stepchildren, adopted and foster children, grandchildren. The allowance can only be used against one property even if there will be part of the allowance left. One other added bonus is that if a home was sold or downsized on or after July 8 2015, the extra allowance can still be used on your passing as long as assets of an equal value to the property sold are passed to linear descendants.
Also, if the house is sold on your death and you have left it to your descendants in your Will, the extra allowance will be available on your estate as the value will pass to the linear descendants instead of the property itself. So by April 2020, a married couple has the potential to leave assets worth £1million without paying any inheritance tax. However, it can be complicated, so it is always best to check with our experienced probate solicitor.
A probate dispute is no fun at all for families, so it is best to ensure you are armed with all the facts. Anybody wishing to know more can find out by contacting us at Pindoria Solicitors on 0208 951 6959.