In April 2017, new inheritance tax rules were introduced and it’s really important that you understand them.
Because by knowing the facts now, you may be able to put the right plans in place to help your loved ones in the future if you have an inheritance tax liability, click here to find out more about thresholds.
Basically, the new rules mean a residence nil rate band can now be used on top of your existing threshold to cover all, or some, of any residential property you own. This additional allowance is currently £100,000 per individual, but will gradually increase to £175,000 by April 2020.
While this change aims to reduce the amount of families paying inheritance tax, not everyone will benefit. Here are a few reasons why:
Extra allowance doesn’t apply in all circumstances
Only your direct descendants, such as children or grandchildren, will be eligible to benefit from this allowance. So if you’re planning on leaving your house to a close friend, niece or nephew, unfortunately you won’t be entitled to it.
“As a first step, you should look into whether you might be affected - which is something we can assist you with. There are a number of simple, cost effective solutions available, and we can help you to devise a plan that’s right for your circumstances.”
Mark Butterworth, Head of Technical Services.
It can only be used for your residential properties
Although this allowance covers any residential homes you own, you can’t use it to cover your buy to let properties.
As UK property prices are increasing, particularly in London and the South East, the allowance may not be enough. According to November 2016 forecasts by Savills, average house prices in the South East will be £366,200 by 2021.
Your estate is much more than just your home
Savings and investments, car, land, and even jewellery are all classed as forming part of your estate. The new rule will help some people, however many will still be affected due to the overall estate being much more than the threshold.
Unsure if you’re liable?
If you aren’t sure about the rules, we can help you.
By speaking to us now, we could make a huge difference to your family’s future.
Please remember that some areas of Inheritance Tax (IHT) Planning are not regulated by the Financial Conduct Authority. Some IHT planning solutions put your capital at risk so you may get back less than you originally invested. IHT thresholds depend on your individual circumstances and prevailing legislation, both of which may change in the future.