With higher house prices, increasingly more families are finding themselves above the inheritance tax threshold when they inherit.
The main threshold is £325,000 above which inheritance tax is 40% on estates of those who die. The threshold is up to £650,000 for married couples and civil partners who pass on their wealth to the surviving partner on death.
From 6 April 2017 an extra residence nil-rate band of £100,000 will be introduced per person. This means that the threshold at which inheritance tax starts to become payable will rise to £850,000 for one family.
This is expected to increase gradually to £125,000 in 2018/19 and £150,000 in 2019/20 and £175,000 in 2020/21.
It will then increase in line with the Consumer Price Index (CPI) for subsequent years.
This means in 2020/21 a house worth £1 million could be passed on without tax.
The property must also be 'closely inherited' so this only applies to wealth in a main residence for children or grandchildren (including step-children, foster or adopted children).
To use the full amount of the two residence nil-rate bands from 2020, the surviving partner must have a residential property worth £350,000 or more.
Couples that are not married cannot pass on nil-rate bands, so they can only have one £325,000 threshold and one £175,000 nil-rate band.
Estates worth more than £2 million will have the nil-rate band reduced by £1 for every £2 that the estate is valued above £2 million.
For those looking to sell their home before they die, perhaps to downsize, the additional nil-rate band will be available on sales that happened after 8th July 2015 as long as evidence can be provided.The value of pensions and investments can fall as well as rise. You may get back less than you invested.Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change.If you are in any doubt as to the suitability of an investment, please contact a qualified tax professional.
Article by: Bradley George, Senior Protection Consultant at Contractor Mortgages Made Easy
Media Contact: Sarah Middleton, Public Relations Manager
Tel: 01489 555 080