At present everyone has an inheritance tax allowance of £325,000. This means that someone can have up to that sum in their estate when they die before any inheritance tax is payable. In addition, a surviving spouse or civil partner may have an allowance of £650,000 if their deceased spouse left them all of their estate when they died.
So what’s the good news? In the last Budget it was announced that the inheritance tax allowance will rise to £500,000 by tax year 2020-2021.This means that , if you have direct descendants (children, step children, adopted children or foster children or their descendants) and if you own a main residence on your death which you leave to one or more of them, then you will benefit from the additional £175,000 allowance. Also, if you have sold your main residence on or after 8 July 2015, e.g in order to downsize, then the additional allowance will be available on assets of an equivalent value which are passed to your direct descendants. As before, a surviving spouse or civil partner may have an allowance of £1,000,000 if their deceased spouse left them all of their estate when they died.
The bad news is that, although the media highlighted the above changes, they will not apply to everyone. If you have no direct descendants living at the date of your death then the new rules will not apply to you – this will be the case for many single people, married same sex couples and those in civil partnerships. Again, if you are estranged from your direct descendants and do not wish to leave them your house then the new rules will not apply to you. Also, if you sold your main residence prior to 8 July 2015 and do not intend to buy another then the new rules will not apply.
The new inheritance tax regime is now far more complicated than before. This means it is even more important that you make a Will to ensure your estate passes in such a way as to benefit fully from the recent changes.
If you need any advice on inheritance tax or Wills & Probate in general, please contact the department on 01206 835261 or [email protected]