10 August 2015 by

Something to write home about – Government announces details of new main home allowance for IHT

Details have now emerged about the Government’s promise to raise the inheritance tax threshold to £1m, in the form of draft legislation amending the Inheritance Tax Act 1984. As ever, there is somewhat of a disconnect between the headlines and reality, so in this article I will outline the new rules so you can see if you will benefit.

First and foremost, the IHT threshold has not gone up to £1m from the current level of £325,000.

Instead, the Government has announced an additional “main home allowance” of £175,000, which is transferable between spouses and civil partners. So, for a single person who owns a home the IHT threshold will be £500,000, and for a married couple or civil partners the threshold will be £1,000,000.

This being tax law, of course it’s not that simple. First of all the allowance will be introduced in stages; in April 2017 it will be £100,000, rising by £25,000 per year until 2020 when it will reach £175,000. In the meantime the IHT allowance will stay fixed at £325,000. After 2021 the IHT threshold and the main home allowance will rise in line with the Consumer Prices Index.

Second of all, it does of course only apply if you own your own home, and live in it as your main residence.

Thirdly, it only applies if you leave your home (or part of it) to your children. If you don’t have any children then you don’t get the allowance. For various technical reasons it also seems that if you leave your estate to your children at an age later than 25, you will lose the allowance. However, the definition of children is very wide, including step-children, adopted children (in relation to both their biological and adoptive parents) and children being looked after by guardians.

Finally, the allowance is gradually withdrawn if your estate is worth more than £2m.

Despite the caveats, this is still welcome news for people who wish to leave their family home to their children. If you would like to review your will in light of the new rules, please call Iain Aitken on 020 7288 4713 or iainaitken@boltburdon.co.uk

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