In the last twelve months, families with recently deceased relatives have paid a record £5 billion in inheritance tax. This is an increase of 9 per cent on the previous year, which saw £4.7 billion paid to HMRC in IHT.
Receipts for April and May 2017 were 34.2 per cent higher than in the same period last year, with many families unfortunately missing out on new, higher limits introduced in April.
The number of estates affected by IHT has more than quadrupled since 2010, from 10,000 to more than 40,000. This is partly due to house prices rocketing over the past ten years, whilst the inheritance tax threshold has remained the same since 2010. A record number of middle-class families are falling into the net as a result of the soaring house prices in the South, as well as the increasing number of elderly people choosing not to downsize due to the cost of Stamp Duty.
IHT is payable on assets such as property, money and possessions that are passed on when you die. Tax is 40% on assets that exceed the threshold (the nil-rate band) which is currently at £325,000.
From April 2017 each person will have a family home allowance of £100,000 in addition to the existing IHT threshold.
This will allow individuals to pass on assets including a family home worth up to £425,000 to their children or grandchildren tax-free. Couples can combine this allowance, taking their total to £850,000 from April 2017. On the death of one partner, any unused allowance will pass to the surviving partner. Those estates worth £2 million will have their additional band tapered so they lose £1 for every £2 over the threshold. Estates worth over £2.2 million won’t receive any allowance.
With house prices continuing to rise, more individuals have become liable for IHT. Planning is more crucial than ever in passing on your estate to your chosen beneficiary.
The threshold increase will have an impact on properties. You may be required to pay more or less IHT depending on the value of your property.
The family home allowance is being phased in gradually so passing on your property to your children or grandchildren when you die will take your IHT exemption to:
£425,000 in 2017/18
£450,000 in 2018/19
£475,000 in 2019/20
£500,000 in 2020/21
Married couples can claim unused IHT from a deceased spouse. For example a couple with a property to leave can get an effective doubling of the combined exemption between them.
The total exemption will rise each year to:
£850,000 in 2017/18
£900,000 in 2018/19
£950,000 in 2019/20
£1,000,000 in 2020/21
What are your thoughts on the new allowance, how will it affect your family in the event of a bereavement? If you would to speak to a tax expert and get some unbiased advice on IHT, get in touch.