EACH individual is taxed at a rate of 40 per cent on all their assets above a threshold of £325,000. But from this month, a new higher threshold including a ‘family home allowance’ has been introduced.
This is worth £100,000 in 2017/18, £125,000 in 2018/19, £150,000 in 2019/20, and £175,000 in 2020/21, according to Jo Lao of Wettone Matthews Accountants in Alton.
Both married couples and civil partners are treated as individuals, each allowed to pass on their full allowance. This allowance is also transferable even if one partner dies before April 2017. This means that married couples will be able to pass on estates worth up to £1m to their direct descendants, including a family home.
People who sell an expensive property will be eligible for an ‘inheritance tax credit’, can still qualify for the new threshold, as long as most of the estate is left to direct descendants.
To qualify for the family home allowance, the property must have been the main home at some point and must be left to one or more direct descendants. This includes children, stepchildren, adopted children and foster children, and grandchildren, but not other relatives such as a nieces and nephews.
Buy-to-let and second properties will add to the total size of the estate as normal.
This change will bring down costs for all estate sizes including family homes. Small estates will still be exempt from inheritance tax and larger estates which included family homes will have an extra £175,000 inheritance tax allowance for those who leave their homes to their children or grandchildren. However, the relief is tapered away for those with estates of more than £2m.