Inheritance tax changes are good news for UK homeowners
Written by Cindy-Marie Leicester on August 04, 2015.
Politicians are not generally known for keeping their word but the Conservatives have wasted no time in delivering on one of their election promises. George Osborne, no longer hampered by the Liberal Democrats, who consistently opposed any changes to inheritance tax, announced in his first Conservative budget that the inheritance tax threshold will be raised from £325,000 to £500,000 per person.
This is the first major change to IHT legislation since 2009 when the current £325,000 limit was introduced. Since that time, many middle class homeowners in the UK have been dragged into paying inheritance tax of 40% on assets above this limit due to soaring property prices. The new rules will effectively take the family home out of inheritance tax for all but the wealthiest families, news which will no doubt bring a smile to the faces of many.
The introduction of a ‘family home allowance’ means that from April 2020 married couples, or civil partners, will be able to pass on assets up to £1m, including a family home, without paying any inheritance tax. The allowance will be worth £100,000 when it is introduced in 2017-2018 rising by £25,000 per year until it reaches £175,000 in 2020.
In addition, homeowners who downsize will not lose the allowance from their former property because they will be eligible for an ‘inheritance tax credit’, as long as they leave their estate to close family members. This measure is intended to discourage older homeowners from remaining in large properties and instead free them up for families.
The affect the measures will have could be significant for many families, as illustrated by the following examples:
George and Frances are married and have a family home worth £400,000 plus other assets which bring the total value of their estate to £1m. Currently they would pay £140,000 in inheritance tax but under the new regulations, from 2020 they will pay nothing.
David and Samantha are also married and their family home is worth £750,000. In addition they have assets worth £750,000 with a total estate worth £1.5m. Under current regulations their IHT liability is £340,000 but from 2020 this will be reduced significantly to £200,000.
In his budget, George Osborne stated that the desire to pass something on to your children is ‘about the most basic, human and natural aspiration there is’. Now many more people will be able to fulfil that aspiration without being penalised by the death tax. And that is surely cause for celebration!