Raising of the inheritance tax limit
The raising of the inheritance tax limit, announced by Chancellor George Osborne this summer, comes with a lot of caveats. The increase is a special inheritance tax concession made available only for family homes of people with children.
Under the family home allowance, a married couple’s joint £650,000 inheritance tax exemption is extended to £1m, with the extra allowance applicable only to the family home, when it is bequeathed to children, grandchildren, stepchildren or adopted children. The allowance, however does not change for anyone else. Nephews, nieces and the children of close friends will all miss out.
The extra allowance is to be phased in, starting at £100,000 in 2017. It will then be raised by £25,000 each year until 2020. By then, on top of their individual £325,000 allowance, each spouse will have the separate individual £175,000 allowance.
Therefore the amount that can be passed on tax free in 2017 will be the standard £325,000, plus the new £100,000 for the main residence. The total of £425,000 per person can then be passed onto the surviving partner taking their allowance on death to £850,000.
The existing individual allowance of £325,000 is now frozen and is set to remain in place until April 2021.
This change to inheritance tax has made a complex area even more complex. As always experienced advice is essential. Please call us if you have any queries in this area.