Yes your home(s) form part of your estate when calculating your liability to inheritance tax. The Government announced the introduction of a new inheritance tax free allowance of £175,000 per person to be used against the family home…but is this allowance as good as it sounds…
One of the most publicised changes following the General Election in May was the introduction of an inheritance tax main residence nil rate band (MRNRB) of £175,000 per person, to be set against the value of the family home. This echoing the Conservatives manifesto promise that ‘you will be able to pass on up to £1 million per couple completely tax free’.
Everyone has an IHT allowance of £325,000, IHT is payable at 40% on the value of the estate in excess of this amount.
The additional MRNRB of £175,000 applies where an individual dies after 6 April 2017 an additional allowance to be used against their main home provided they leave the property to direct descendants via the will. It is proposed that the MRNRB should also apply if someone downsizes or ceases to own a home after 8 July 2015 and assets of an equivalent value are left to direct descendants. Further consultation will confirm the details.
This brings the potential total IHT allowance to £500,000 per person. As IHT allowances are transferrable between spouses or civil partners, this potentially brings the total to the magic figure of £1million per couple.
Unfortunately the relief is not quite so straightforward, here are some of the key facts to bear in mind:
• The relief is introduced gradually, starting at £100,000. The full £175,000 will only apply from 6 April 2020 onwards.
• The relief is reduced if the total value of your estate exceeds £2 million, with no relief for estates worth more than £2.35 million.
• The property must be left to direct descendants i.e. not siblings, nieces/nephews, wider family members or friends.
• The MRNRB can only be set against the net value of a property, which may mean that little relief is available if there is a mortgage or equity release, even if the overall estate is valuable.
In summary whilst overall good news, the MRNRB is complex and includes a number of conditions, which if not considered fully could result in many missing out on the benefits.