Changes to Inheritance Tax

31st July 2015

The recent Budget confirmed that a new dedicated “main residence nil rate band” will be introduced from April 2017 specifically to protect the family home from inheritance tax.  This means that, provided certain conditions apply, by 2020 a couple could pass assets up to £1m on to their children tax free.  The property must pass to a direct descendant, not a brother, sister, niece or nephew.

The allowance will be £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21, and will be in addition to the existing £325,000 nil rate band. Special rules will apply to protect those who downsize on or after 8 July 2015.

There will, however, be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2 million which means that if a married couple has an estate valued in excess of £2.7m in 2020, they will not benefit from any of the additional nil-rate band and will be left with their original nil rate bands (£325,000 x 2).

With the nil-rate band continuing to be frozen at £325,000 until April 2021 this new allowance will be welcome news to many.