The rules governing how much you can pass on tax-free at death are changing. Everyone is currently entitled to pass on £325,000 tax free, which is known as the ‘tax free threshold’ or ‘nil-rate band’. Any assets in an estate above this amount will incur Inheritance Tax (IHT) charge at 40%.
From April 2017, the Government is introducing a new ‘Family Home Allowance’. It is specifically for people that own their own home and who want to leave it to ‘direct descendants’. This will be introduced gradually over four years, with the allowance worth:
- £100,000 for 2017-18
- £125,000 for 2018-19
- £150,000 for 2019-20
- £175,000 for 2020-21
To qualify, the property must have been a main home and be left to one or more direct descendants, such as children and grandchildren, but no other relatives such as siblings, nieces and nephews. Only one property can qualify for the additional relief.
The family home allowance will also be transferrable between spouses, even if one partner dies before its introduction in 2017.
If you would like to know more about the family home allowance and Inheritance Tax (IHT), please feel free to contact us.