Conservative Party propose a “Family home allowance of £175,000”
The Conservative party have announced that if they are re-elected, then from April 2017 parents would each be offered an additional £175,000 “family home allowance” to enable them to pass property on to their children tax-free after their death.
Under the current rules, inheritance tax is charged on estates worth more than £325,000, rising to £650,000 for couples because the rate is transferable between those who are married or in civil partnerships.
This extra family home allowance is for the main residence only but could be added to the existing £325,000 inheritance tax threshold, bringing the total transferable tax-free allowance of a single person up to £500,000. Therefore, in a married couple or civil partnership the tax free allowance could be increased by £350,000 giving a total of £1m. The full amount would be transferable between spouses even if one spouse had died before the policy came into effect, the Conservatives say, and so would benefit existing widows and widowers.
For properties worth more than £2m, the allowance will be gradually tapered away, so that those with homes worth more than £2.35m do not benefit at all.
Some 22,000 families are expected to benefit by 2020 from the pledge, which will be paid for by a £1bn raid on pension tax relief for people earning more than £150,000.
In a message on Twitter, David Cameron said: “The home that you’ve worked and saved for belongs to you and your family. We’ll help you pass it on to your children.”
Should this impact your Trust planning?
It is widely accepted that there are three steps to estate planning which most people prioritise as follows:
- Direction of assets (ensuring the right people get the assets)
- Protection ( avoiding loos of money if a beneficiary is divorced later)
- Tax Benefits ( Reducing inheritance tax)
So, in the event that the Conservatives were elected and the proposed changes went through, it wouldn’t eliminate the need to put your assets into Trust to ensure they are directed to the people you want them to go to and are protected against social impacts such as divorce. If there is a tax benefit – well, that’s an added bonus.
You can argue the morality of using the family home as an emotive arm twister rather than the more practical approach of simply increasing the IHT threshold. We will follow this proposal very closely to see if it becomes a reality should the Tories get elected or an empty promise to families, however, our expectation is that most clients will realise it is a bonus where more assets may be protected in Trust for their children.
As always experienced advice in this complex area is essential so please call us if you require help.