The Promise
The Conservative Government in the run up to the 2015 election promised to increase the Inheritance Tax, (IHT) threshold to £1 million. In this article we look at the implementation of that promise.
Inheritance Tax – The Basics
IHT is a tax on lifetime gifts and on death. We each have an IHT allowance of £325,000. Most married couples and civil partners will have a combined allowance of £650,000. If the value passing exceeds the allowance IHT on the excess is charged at 40% on death and 20% on certain lifetime gifts.Gifts between spouses and to UK Charities are generally exempt from IHT.
The New Allowance
The new allowance should be worth up to an additional £175,000 for each of us. A married couple can double this to £350,000.
If we add the basic allowance for a married couple of £650,000 to the new allowance of £350,000 we reach the promised £1 million. The maximum for a single person, which includes someone who has been divorced, is £500,000.
The new allowance is being introduced on 6th April 2017 with increases following in April 2018, 2019 and 2020. The full allowance will only be available from 6th April 2020.
The Detail
1. The individual must own their own property at the time of their death or if sold during their lifetime they must have owned a property as their home on 8th July 2015.
2. The property, or the sale proceeds, must pass on their death to their direct descendant’s. This means children, grandchildren etc.
3. There is a tapered withdrawal of the new allowance for estates of more than £2 million
Conclusion
The outcome for most home owning married couples with children is an IHT allowance of up to £1 million. The allowance however for a single person without children remains at £325,000.
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