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The new 'family home allowance'.

Posted by siteadmin on Thursday 29th of June 2017.

In this world nothing can be said to be certain, except death and taxes.
Benjamin Franklin.

So it’s good when we learn of a reduction in taxes. 

This April 2017 saw the introduction of the government’s new additional tax-free allowance in respect of Inheritance Tax (IHT) ; the residence nil rate band, also known as the ‘family home allowance’.

What is the new family home allowance?

The new 'family home allowance' is set initially at £100,000 from April 2017, rising by £25,000 per annum to the maximum of £175,000 by 2020. The allowance is per person and they must be a homeowner. This will be added to their current IHT allowance of £325,000 per person.
Therefore, by 2020, the spouse can still inherit any unused IHT allowance meaning that they can pass on up to £1 million free from Inheritance Tax.

You can see from the table below how the figures are arrived at.

Tax Year

Current Nil Rate Band (£)

NEW family home allowance/ Residence Nil Rate Band
(£)

Total for an individual (£)

Total for a married couple or civil partners (£)

2017/2018

325,000

100,000

425,000

850,000

2018/2019

325,000

125,000

450,000

900,000

2019/2020

325,000

150,000

475,000

950,000

2020/2021

325,000

175,000

500,000

1,000,000

 

On estates valued over £2 million the homeowners will lose £1 of the allowance for every £2 of the value of the property over £2 million. This means that homes valued at £2.350 million in 2020/2021 would lose all the family allowance, as each owner gets £175,000 against the net value of the property.

Other Allowances against IHT.

Annual exemptions

You can gift £3,000 each tax year and £3,000 from the previous tax year but only if you haven’t already done so. Small gifts can be paid up to £250 to any number of people IHT-free.

Gifts from your income can be made if they are regular gifts from any surplus of your income which does not impact on your standard of living.

Estate planning can be very complex so if you would like to seek investment advice from an independent financial adviser,  please contact us either by clicking on the Investment enquiry button on Make Enquiry tab or on our Freefone number 0800 193 1066.

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