Wednesday 19 August 2015

Inheritance Tax: Additional tax free allowance for homeowners from April 2017

It was announced in the Summer Budget last month that an additional nil-rate band will be available from April 2017.

Garden House Solicitors of Hertfordshire
The extra allowance will be exclusively available to estates where the deceased dies on or after 6 April 2017 and their residence is passed to one or more direct descendants. In other words, if your children, stepchildren or grandchildren inherit your home on your death, your estate will benefit from the additional allowance.

The additional allowance will be £100,000 in 2017/2018 and this amount will increase by £25,000 each tax year until 2020/21 when the additional allowance will be £175,000.

The current position is that when you pass away, the net value of your estate is calculated and everything over the value of the nil-rate band (currently £325,000) is taxed at the rate of 40%. This is subject to various exemptions and reliefs, for example anything left to a spouse or civil partner will pass tax free.

The additional allowance will work very much in the same way as the current nil-rate band in that any unused portion will be transferable between the estates of spouses and civil partners.

For example, a husband (H) and wife (W) own a property together and make wills leaving everything to each other on the first death and everything divided between their children on the second death. H dies first. As W receives the whole estate, there is no inheritance tax to pay under the spouse exemption.

When W dies, her personal representatives can claim the unused nil-rate band from H’s estate. Under the current regime, this would mean a tax free allowance of £650,000 (£325,000 x 2). By 2020/21, this allowance will effectively have been increased to £1 million ([£325,000 + £175,000] x 2).

It has been confirmed that the main nil-rate band will remain frozen at £325,000 until 2020/21.

If you currently own your home and are thinking about downsizing or selling your house, your estate can still benefit from the additional nil-rate band if you decide to sell your home. This would be on the basis that you leave assets of an equivalent value (e.g. proceeds of sale) to your direct descendants.

It is worth noting that if you pass away and the net value of your estate is above £2 million, the additional nil-rate band available will decrease by £1 for every £2 over that amount.

Although the additional nil-rate band is not due to come into effect until April 2017, it may still be an appropriate time to review your will.

If you have any concerns about your will or inheritance tax planning, please feel free to contact Chris Lucas on 01992 422 128 or by email at

Follow me on Twitter                                               Connect with me on Linkedin
Private Client Solicitors of Hertford

Tel: 01992 422 128

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

No comments:

Post a Comment