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The Budget and Inheritance Tax - Our View

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The Summer Budget was full of headline statements and here Jane Cox, Private Client Partner, takes a detailed look at how the rise of the Inheritance Tax threshold will work in practice.

We currently have a system which allows each individual to pass £325,000 (‘Nil Rate Band’) on their death without any charges to Inheritance Tax.  Any assets over and above this amount is charged to 40% Inheritance Tax.  If you are a married couple, this can rise to £650,000 on the death of the survivor, if the first to die has not used any of their Nil Rate Band.

The Summer Budget stated that the threshold is set to rise to £1million for married couples, which it will so by 2020, but this is not with immediate effect and again certain conditions must be met.  The Budget also states that there will be an additional tax free allowance when a residence is passed to direct descendants, which is to be known as the ‘Main Residence Nil Rate Band’.  We have yet to have any guidance issued from the government or Inland Revenue as to the definition of “direct descendants” however our understanding, until further clarification, is that this applies to children and grandchildren.

This Main Residence Nil Rate Band will start in 2017/2018 at £100,000 and will subsequently rise by £25,000 each year until 2020/2021 to £175,000. Therefore in 2018/2019 it will be £125,000, in 2019/2020 £150,000 and finally 2020/2012 £175,000.

The Nil Rate Band itself will remain static at £325,000 until April 2021, with the Main Residence Nil Rate Band being added to boost the Nil Rate Band.

A condition has also been added that if a person sells a property after 8th July 2015, for example in order to downsize or go into care, they will be able to use the highest value of the property sold after that date when calculating the main residence nil rate band.  This means that clients must ensure that records are kept, so that the Executors of their estate can use the most tax efficient value of property that has been owned.  We often see Executors struggling to piece a persons estate together and therefore recommend keeping an up to date schedule of your assets, including details your property with your Will or personal papers.  If you subsequently sell the property, then it is important to keep the completion statement, or sales particulars with your personal papers or Will, to enable your Executors to make the correct representations to the Inland Revenue in your death.

By 2020, if a person dies owning or having owned a property after 8th July 2015 worth £175,000 or more, together with other assets, the combined value of which total £500,000 or less there will be no Inheritance Tax payable if their estate is passed to direct descendants.  For a married couple this will mean that if the first to die has not used any of their Nil Rate Band, then on the survivors death, they can leave assets of up to £1million, without paying any Inheritance Tax, providing of course than £350,000 is either in property owned on death or previously owned and that this is passed to direct descendants in their Will.

How all of the above will work in practice is currently under a technical consultation between the Government and Inland Revenue, however we would urge all clients to ensure that their Wills are up to date and they keep records of all property sold as from the 8th July 2015.

Here at Warner Goodman LLP we keep abreast of all changes in legislation and practice and we ensure that our clients are given the best possible advice in light of the same. If you do wish to discuss how the changes will effect you, or wish to make or update your Wills, please do not hesitate to contact our team on 01329 222075 and an appointment can be made to discuss your requirements in more detail.


This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.