How the summer budget’s inheritance changes will affect you
The summer budget contained a welcome surprise for all those who want to leave property to children, enabling married couples and civil partners to pass on assets of up to £1m, including their family home, without paying inheritance tax.
This is because the new “family home allowance” will eventually add £175,000 per person to the existing £325,000 inheritance tax nil rate band, starting with an initial extra £100,000 allowance per person from 6th April 2017 and rising to £175,000 by April 2020.
But – and there is always a ‘but’ – the rules are extremely complicated and there are pitfalls to watch out for:
- The draft legislation states that the extra £175,000 family home allowance will only be available where the family home is passed to children. Children includes stepchildren, adopted or foster children and grandchildren – nieces and nephews do not qualify.
- If you do not have a main residence, the additional allowance is unavailable and the maximum nil rate band you may be entitled to is £325,000 per individual.
One key point to remember, and act upon, is that any current wills may not be tax efficient.
If you had decided to plan ahead and you have left your family home into a “discretionary trust” for your children in your current will, you could miss out on the new family home allowance.
This happens because, to qualify for the family house allowance, the family house must be passed to children. If it is passed to a discretionary trust, the trustees take the legal ownership of the property and the children are merely beneficiaries. The trustees use their discretion with regard to which beneficiaries benefit from the trust and how much they receive. Therefore the family home has not passed directly to the children.
Now is the time to review your current will in light of the recent changes to inheritance tax to ensure that your forward planning is as tax efficient as possible. We would be delighted to hear from you – for expert advice and help, contact Ann Bibby, Head of Tax, on 01905 744898 or at firstname.lastname@example.org.