As the old saying goes, “What you enjoy is yours; what you save for your heirs, is already not yours, but theirs”, and the UK Government’s new plans will see that whoever inherits your estate will be able to fully enjoy it in regards to Inheritance Tax (IHT). Following George Osborne’s latest budget, hundreds of thousands of families stand to be taken out of the previous tax net completely.
With each budget that is announced there is always a cautious optimism surrounding it, as we all cling to the hope of seeing some significant changes to brought to existing schemes. IHT has always been a point of contention, with many commenting that while it has been designed to make only the very wealthy pay taxes on estates, there are still too many classed outside this bracket having to pay hefty taxes on a lesser amount.
The new plans stand to remedy this, and families across the country will genuinely benefit from the first major changes to the IHT threshold since 2009. Now as we all know, tax schemes tend to stay on the complex side, so lets take a look at the key points on IHT.
So how will these changes affect me?
Simply put, the changes are quite positive for everyone. The IHT threshold is finally being raised, meaning that your family will inherit more from your estate before a tax charge is triggered. From April 2017 the total IHT threshold will increase steadily to £500,000 per person in 2020. For married couples and civil partners this means you can pass on assets worth up to £1m before a penny goes on IHT.
What is the difference?
As it stands now the IHT threshold before you pay any tax is £325,000. Married couples/civil partners are permitted to double the allowance to £650,000. This means that your family can now inherit an additional £175,000 or £350,000 – depending on your circumstances.
How does my estate qualify?
In order to qualify you property must have been the main home at some point and must be left to one or more of your direct descendants. Here we have some more changes, as a direct descendant will now be classed as being children; stepchildren; adopted children; foster children and grandchildren, keeping in line with the evolving nature of the modern family. It is also important to note that only one property in the estate will qualify with the new IHT guidelines.
But does this mean I have to stay in the family home?
Perhaps one of the most welcome points is that you will no longer have to worry about staying in the family home in order to pass it on. The new family allowance will remain in place for those who sells up or downsizes to a smaller property on or after July 8th 2015. So any cash left over from leaving the family home will stay part of your asset. The aim here is that it will help promote older people to sell and help younger growing families.
With all these changes coming to how IHT is applied, it is clear to see that despite the positive news of a better rate, you must still seek out and take specialist advice regardless of your circumstances. Having an up to date long-term legal and financial plan in place such as a will that’s drafted correctly will help you keep your estate in line with your wishes. We will be more than happy to assist you in doing this.
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