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Good news for property owners in this Summer's budget

View profile for Laura Stuart
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On 8 July, Chancellor George Osbourne announced the 2015 budget and among the headlines was a fairly hefty change to the Inheritance Tax (IHT) regulations which will affect increasing numbers of property owners as house prices continue to rise.

And it’s not all doom and gloom. The Chancellor’s budget has increased the threshold for IHT payable on estates worth over a certain value. This means that more people will be able to pass on estates with little or no IHT liability.

The rules prior to 8 July 2015
Before the new budget, there may have been an inheritance tax liability on a person’s estate at death, if the net value of the estate was over the ‘nil rate band’ threshold of £325,000. Anything over this value was subject to IHT at the rate of 40%. The liability was calculated based on the person’s assets, liabilities, the nil rate band, the current rate of tax and any reliefs. 

In addition to this, any transfers to a spouse or civil partner were not subject to inheritance tax. In practice, this meant that married couples were able to transfer their unused nil rate band to their surviving spouse meaning that the nil rate band can potentially be doubled to £650,000.
The changes
The Chancellor has now announced that he will give an additional £175,000 per person by  2020 by introducing a new ‘main residence nil rate band’. The additional nil rate band is available to families when a residence is passed on death to children. It will be introduced in stages with £100,000 being allowed in 2017 to 2018, £125,000 in 2018 to 2019, £150,000 in 2019 to 2020 and £175,000 in 2020 to 2021.

The main residence nil rate band will also be available when a person downsizes or sells their home on or after 8th July 2015 and assets of an equivalent value to the additional nil rate band, are passed on death to children. We look forward to finding out how this element will work in practice.  

The implication of this change is that the total amount exempt from inheritance tax for families could potentially be £500,000 per person. Married couples will still be able to transfer their unused nil rate band meaning that £1,000,000 could be exempt from inheritance tax.

This is good news for those with high value assets, which typically includes property. A married couple with a house worth up to £1,000,000 (not too much of a stretch for London properties) can now potentially pass this on to their children upon death with no IHT payable by the estate.

For more information on the new IHT rules and how they might affect you or your loved ones, contact a member of the Wills, Trusts and Probate team for advice and support.