25 November 2015
In July the long-standing pledge by the Conservative Party to reduce the burden of Inheritance Tax for so called “Middle England”, by increasing the entry point for a married couple to an eye catching £1,000,000, came to fruition.
In the first Conservative Budget for nearly 20 years delivered by George Osborne, the much anticipated rabbit pulled out of the Chancellor’s Hat turned out to be a complex beast.
Rather than simply raising the moribund nil rate allowance of £325,000 per person (transferable between spouses and civil partners) to £500,000, above which the tax is levied at 40%, Mr Osborne has created an additional allowance to be attached to the family home being passed on to “direct descendants”.
A time to seek advice
Whilst the full details are awaited, what we do know is that the new allowance will start from 6th April next year at £100,000 per person. This will increase to £175,000 per person by the end of the current Parliament in 2020/21.
There is not time in this blog to deconstruct the proposals and raise detailed arguments about how what has been announced is unfair to unmarried partners, siblings or others who you may wish to leave your house to on death.
However, what is for sure is that more than ever expert advice about Inheritance Tax is required when people are making Wills and thinking about “estate planning”. Namely, how best to utilise the allowances, exemptions and reliefs to the tax available to them.
It is also no wonder that recent research by Remember A Charity has found that there is mass confusion out there about how the complex rules about Inheritance Tax apply to individuals. Two fifths (40%) of pensioners surveyed were unsure how Inheritance Tax will affect their family and friends.
I live and work in Lancaster. In my locality house prices still seem to be out of reach for many people, especially at the younger end of the population. Looking at the South East from afar it looks to me that it must be impossible for ordinary folk to ever aspire to own a home.
Generation “Buy” who bought their own homes in the 1970’s and 80’s are giving way to Generation “Rent”. But is it Generation Buy who are now thinking about estate planning and with house prices still rising, for them the issue of Inheritance Tax is of considerable concern.
Have you considered gifts to charity?
The lack of understanding about how and when Inheritance Tax is charged betrays a corresponding lack of appreciation that gifts to charity are exempt from the tax.
In my experience, there is also only limited understanding of the rules about gift on death of 10% of more of an estate triggering a reduced rate of Inheritance Tax of 36%.
All of this means that for professional advisors like me, being increasing called upon to steer clients through the legal maze which is Inheritance Tax, an integral part of the advice must be the “win win” of remembering a charity.
Find your local professional advisor.
Gary Rycroft, Partner with Joseph A. Jones & Co Solicitors and Member of The Law Society Wills & Equity Committee