Will you be able to pass on your home Inheritance Tax-free

Will you be able to pass on your home Inheritance Tax-free?

The current nil rate band for Inheritance Tax (IHT) is £325,000 and has been for almost a decade.  In the meantime, house prices in BS9 have risen by 34% on average.  The increase in the value of their homes has brought many more people within the scope of IHT.

In April 2017 a residence nil rate band was introduced to help cover the value of the family home when passed to direct descendants (i.e. children, grandchildren etc.) on death.  This is currently £100,000 and will increase to £175,000 by April 2020. 

Married couples and civil partners can pass any unused nil rate band to their surviving partner.  On the second death the nil rate band can therefore be up to £650,000 and the residence nil rate band can be up to £200,000 currently, rising to up to £350,000 by April 2020. 

This means it will soon be possible to pass on an estate of up to £1,000,000 without paying IHT.  The family home may be exempt from IHT as a result in some cases.  However, there are some key points to bear in mind: 

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  • The residence nil rate band can only be claimed if the home is passed to direct descendants. This is therefore not an option for those without children or who want to pass the home to someone else.

  • Estates worth more than £2,000,000 do not benefit from the residence nil rate band in full. It is reduced by £1 for every £2 by which the value of the estate exceeds £2m.

Previous estate planning may need to be revised to take full advantage of the new residence nil rate band, e.g. potentially changing the distribution of assets so that the home passes to a direct descendant and/or making gifts on or after the first death to keep the value of the estate under £2m on the second death.  IHT planning is a complex area where we suggest seeking personalised financial and legal advice.

Richard Higgs, Chartered Financial Planner at Wealth West Ltd, provides friendly financial advice in BS9 on a face-to-face basis in the comfort of clients’ own homes.  He specialises in advising retired clients on savings, investments, Inheritance Tax and long-term care planning.  He can be reached on (0117) 3636211 or richard@haroldstephens.co.uk