From April 2017 each individual will be offered a “family home allowance” of initially £100,000 and increasing to £175,000 by 2020-21. Following the design of the existing “Nil Rate Band” of £325,000, it will be capable of transfer between spouses and registered civil partners .
The effect will be to permit up to £1m to transfer on death to children and grandchildren free from Inheritance tax. The new allowance will be available to “downsizers”. Notably it does not extend to other close family members eg siblings and will not be indexed linked. The relief will be gradually withdrawn for estates in excess of £2m. The new allowance will be applied in much the same way as Capital Gains Tax private residence relief and cannot be split across different properties. It will be applied to the net value of the property after deduction of any mortgage.
In 2013/14 only 5% of estates were subject to Inheritance tax. The new rules, whilst welcome to many, do not reduce the need to plan ahead for the protection and the security of the family. Complex family and business relationships as well as concerns about our health and care in older years mean everyone needs carefully considered Wills and Powers of Attorney just as much as ever.