The problem of IHT has become so widespread that – according to HMRC data – IHT revenue for the 2015/16 tax year reached a record high of £4.7 billion, over 60% more than 2011/12. Not only that, according to the Office for Budget Responsibility, 40,000 families paid IHT over this year.
These statistics highlight the importance of IHT planning, and the fact that if more people took steps to address their IHT liability, annual revenue would not have been so high.
What is IHT?
If your estate exceeds your IHT nil rate band, any amount over this will be taxed at up to 40% upon your death. In most cases, your loved ones will unfortunately have the burden of paying this. The current nil rate band per person is £325,000 and up to £650,000 for a married couple or for someone who is widowed.
From April next year, the government is introducing a new ’main residence’ nil rate band which could potentially remove your house, in full or in part, from your estate for IHT. This will eventually increase to £175,000 per individual and will be available in addition to the existing nil rate band.
The new nil rate bands are being introduced gradually
From April 2017, the ‘main residence’ nil rate band starts at £100,000 (per person), increasing to £125,000 in 2018/19 and to £150,000 in 2019/20, before reaching the final amount of £175,000 in 2020/21.This means there is another four years to benefit from the full allowance.
This 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 family member such as a niece or nephew, unfortunately you won’t be entitled to use the new allowance.
The new allowance can only be used for your main home
If you have more than one property, only your main one can qualify for this family home allowance. Properties such as rental/holiday homes will not benefit.
House prices are forecast to rise even further
According to July 2016 research by the Centre for Economics and Business Research, average property prices are set to increase by around £40,000 over the next five years. Therefore even if your home is currently below the additional allowance, this may change over the years.
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 many 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.
“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.
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.