Inheritance Tax reform
It is often a concern for people when drafting their Will as to how much tax will be payable on their estate once their assets pass on. Currently, there is a nil-rate band up to a value of £325,000 before any tax is payable on a deceased’s estate, but this is all set to change.
From 6th April 2017, the government are introducing a new tax free ‘main residence’ band for those beneficiaries who are to inherit from a parent or grandparent.
The exemption is limited to those beneficiaries labelled ‘direct descendants’. A direct descendant has been defined as: ‘a direct descendant will be a child (including a step-child, adopted child or foster child) of the deceased and their lineal descendants’.
The band will initially allow for a relief on the first £100,000 of the property value and this will rise to £175,000 by 2020. The new nil-rate band will apply on transfers on death occurring on or after 6th April 2017. A property which was owned by the deceased but was not lived in by them, will not qualify for the exemption. Similarly, those who are left property by someone who was not a parent, step-parent or grandparent will not qualify for the relief.
The existing nil-rate band of £325,000 will continue to apply until 2021 after which time it may be subject to change.
In practical terms, this means that individuals may wish to re-evaluate who will inherit their property upon their death, to make the most of the exemption.
If you would like to revisit your Will in light of the forthcoming tax changes, or have a query about the distribution of a loved one’s estate, contact us on 01926 499889.