In April 2017, the Government introduced the “main residence nil-rate band” on top of the existing nil-rate band.
This band allowed parents to pass down an additional £100,000 tax-free to children and grandchildren as long as it was used against the main family home.
This essentially increased the total amount you can pass down to heirs to £425,000 – or £850,000 if the allowance is transferred over to a married or civil partner.
But come April 2018, the main residence nil-rate band will increase to £125,000, increasing the total amount you can pass down to £450,000.
Rising house prices have meant that a huge number of homeowners are caught in the Inheritance Tax trap when the time comes to pass down your estate to children. The extra £25,000 (or £50,000 if combined with a partner’s allowance) will be extremely helpful, but there is of course always more that can be done to pass down wealth tax-efficiently.
How does Inheritance Tax work?
Before the estate is distributed, the executor will need to pay any Inheritance Tax that is due. There’s normally tax to pay if the value of your estate is above the £325,000 threshold, except when it is left to your spouse or civil partner or a charity.
If you give away your home to your children (including adopted, foster, or stepchildren) or grandchildren, your threshold will increase to £425,000 (£450,000 in April 2018).
Any unused threshold can be transferred to a spouse or civil partner, meaning the maximum available allowance is £850,000 (£900,000 in April 2018).
Inheritance Tax is charged at 40 per cent on the part of your estate that is above the threshold. The executor can pay the tax using his or her own funds and claim it back using your assets, or use the available funds from your estate. Click this link for more information on paying Inheritance Tax.
Too much to take in?
We’ll be happy to answer any questions you might have about Inheritance Tax.
As a firm that specialises in Inheritance Tax planning, our goal is to ensure that you will be passing down the financial security that your family deserves.
What we can do for you:
- Inheritance Tax planning
- Capital gains tax implications
- Wills advice
- Income provision in retirement
- Business exit strategy and succession planning
- Asset protection
Remember, it’s never too early to plan for your future. Contact JW Hinks for more information today.