After years of waiting, increases in the Inheritance Tax threshold were finally announced in the Budget last week. But are they what they seem?
For over a decade, media, social groups and estate planning firms have been calling for a review of the Inheritance Tax threshold and how it relates to passing on family homes after death. After a 6 year freeze welcome changes were finally announced in last week’s budget but the waiting game is not over yet.
One of the most talked about announcements in the budget was the addition of a new Nil-Rate Band – the amount that can pass to descendants before tax is charged – to a total of £1million per couple, passing on a family home. But the changes will only apply from April 2017 and will be staggered until 2020. It’s a move that has left many confused and frustrated.
It’s frustrating to see these changes dangled in front of families like some near-distant carrot on a stick. Two decades of house price rises have meant that many people are leaving estates worth far more than the current threshold simply by living in their own home. It’s not something that they have control over or should be punished for.
The new banding for Inheritance Tax will start being applied in 2017 and will only affect those passing down the main family residence to direct descendants. The current threshold of £325,000 per person will rise by £100,000 in 2017 and in £25,000 increments every year following. That means that the full £1Million allowance will not be applied until 2020 – 5 years after it was announced and 13 years after it was first proposed!
“The Treasury have not said why they’re delaying and staggering the changes. The details were somewhat hidden behind the headlines by much of the press. As with so many things, the devil really is in the detail.
Whatever the reason, the change is coming and it will benefit a good many thousands of families across the UK.
If you would like to discuss how the changes will affect you and your loved ones, or if you’re planning for your future, call Estate Planning Solutions on 0800 781 6658.