In April 2017 some of us will get a new tax allowance in the form of the first stage of government’s Residential Nil Rate Band.
From that date each of us is potentially able to use this additional allowance, which starts at £100,000 per person, to reduce our liability to Inheritance Tax on death. Each subsequent April, for three years, the allowance will increase by a further £25,000 up to a total of £175,000 per person.
Married couples may transfer this allowance to each other on the first death, as they already can with the basic Inheritance Tax allowance of £325,000 per person, so long as everything passes from the first person to die to the survivor.
The new allowance can be used against the home owned by each of us at our death but not against other assets. If you have a house which is under the value of the allowance, but other assets which exceed the £325,00 allowance, you cannot use the balance of the new allowance against those other assets. It can only be used against the house.
However there are further strings attached and the most important of these is the requirement that the house in question is eventually passed to your children, grandchildren or other lineal descendants. If you do not have children this allowance is of no value to you.
Eventually the combined value of the existing allowance and the new one will be £500,00 per person giving married couples a potential combined allowance of £1m.
Should you need any assistance or have further questions, please do not hesitate to contact us.