CURRENTLY, IHT is paid at 40 per cent on all inherited assets worth more than £325,000.
The new transferable amount of £175,000 on top of the current £325,000 will benefit those couples with children and grandchildren to whom they can pass on their family home. Parents will also be able to downsize their property without fear of their children missing out on the IHT break as measures are being put in place to protect this.
CURRENTLY, IHT is paid at 40 per cent on all inherited assets worth more than £325,000.
The new transferable amount of £175,000 on top of the current £325,000 will benefit those couples with children and grandchildren to whom they can pass on their family home. Parents will also be able to downsize their property without fear of their children missing out on the IHT break as measures are being put in place to protect this. But how generous, really, is this additional relief?
One reason so many middle-class families now pay IHT is that the £325,000 threshold has been frozen since 2009, while house prices have risen significantly over this time. The threshold is set to remain frozen until 2021 but with inflation and further predicted house price growth this will steadily reduce the value of this tax break, dragging more and more families into the IHT net.
The Chancellor is also taking his time over phasing in his extra £175,000 tax-free nil-rate band. The additional relief will not kick in until the 2017/18 tax year and then at just £100,000 before gradually increasing to £175,000 in 2020/21.
Worse still, some families might not benefit from the new relief at all as it will only apply to the main family residence and won’t apply if you are supporting other relatives. Furthermore, the full £1m will not apply to cohabiting couples, because only married couples and civil partners can transfer their allowance to each other on death.
The final sting in the tail is that for estates worth more than £2m, the additional IHT allowance will be gradually clawed back.
Inflation and the complexities surrounding the new IHT relief will mean that many people will still be caught out by this hard hitting tax. It’s important to understand your potential exposure and the opportunities available to plan around it. Making use of the exemptions available in passing on assets to remove them from your estate immediately or after a period of seven years, together with planning the use of tax efficient trusts could help cut your liability dramatically.
For help on understanding your exposure to IHT and understanding the planning available to reduce it, please contact Jennie Bellamy, Regional Head of Private Client Tax at Haines Watts Northampton and Kettering on 07554 553 844 or via email on