Passing on the family home – changes to Inheritance Tax

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One of the most eagerly anticipated (and accurately predicted) announcements in the budget on 8 July was the changes to Inheritance Tax (IHT) when passing on the family home on death. This is welcome news to many, particularly those in areas with high property values.

The new Main Residence Nil Rate Band (MRNRB) is being introduced from April 2017, but somewhat controversially, is being funded by the introduction of a tapering of the Annual Allowance on pensions and limiting tax relief for higher earners. We have covered this in more detail in another article.

The MRNRB applies to an individual’s main residence when it is passed on death to direct descendants, such as a child or a grandchild.  This new band is in addition to the current IHT Nil rate band of £325,000, starting at £100,000 and rising by £25,000 each tax year until it reaches £175,000 in 2020/21, meaning that on second death a total estate of £1million could be passed on IHT free.

As with the current nil rate band, any unused MRNRB is transferred to a spouse or civil partner and also applies if someone downsizes their property or ceases to own their home on or after 8 July 2015 and assets of an equivalent value as the allowance in force at the date of death are passed directly to descendants.

According to the Government’s figures, rising property prices have meant that there are around 63,000 estates expected to have an IHT liability by 2020, but as a result of these new measures this figure will reduce to around 37,000.

To read the Armstrong Watson’s summary on this subject, click here

Armstrong Watson are Accountants, Business and Financial Advisers and are able to provide clients with tax and financial planning advice under one roof. If you have any IHT or pension concerns please contact us at any of our 15 office locations.