Inheritance tax changes 2016 – don’t believe everything you read
You may have noticed recent headlines about the increase in the inheritance tax allowance or ‘nil rate band’ to the rather thrilling figure of £1,000,000.
Alas, the true position is much less rosy.
The inheritance tax nil rate band remains fixed at £325,000 per person until at least 2020/21.
The government has promised to introduce a new ‘main residence nil rate band’ which starts at £100,000 from 6th April 2017 rising to £175,000 by 2020/21.
The legislation for this new allowance has not yet been finalised. Draft clauses to be included in the Finance Bill 2016 were published on 9 December 2015. The inheritance tax changes are complicated and substantial, but it is anticipated that the additional allowance will apply where a residence is left to ‘direct descendants’, including children and step-children. The legislation is also likely to include provisions allowing the main residence to be preserved after down-sizing and if property is left upon certain types of qualifying trusts.
So where does the £1,000,000 headline come from?
Well, if you are married or in a civil partnership, you can transfer your ‘ordinary’ nil rate band to your surviving spouse or partner. The single allowance of £325,000 doubles up to £650,000.
If you are also fortunate enough to have a house, the ‘main residence nil rate band’ can also be transferred. If you live long enough (2020/21) then the main residence nil rate band will be £175,00. Double up £175,000 and you get £350,000. Add this to the doubled-up ordinary nil rate band of £650,000 and you get the magic £1,000,000 figure.
What does this mean for you?
Make sure that your Will is up to date and properly drafted so that your family can benefit from the maximum possible inheritance tax allowance after your death.
If you own (or have owned) a property, keep an eye on the news and make sure to review your Will in 2016 when the Finance Bill is finally enacted into law.
