New inheritance tax rules come into force on 6 April
From April 2017 an additional 'residence nil-rate band' of £100,000 per person will be introduced, increasing to £175,000 by 2020. From 6 April, each individual can claim an additional allowance of £100,000, the residence nil-rate band, to offset the sale of a family home on death, on top of their existing £325,000 nil-rate band. This new tax allowance will rise to £150,000 in 2019 and £175,000 by 2020, allowing a couple to pass on £1m estates tax-free. The government anticipates the new rules will result in more family homes being free of inheritance tax, making it easier to pass on the family home to direct descendants. Yet many people could miss out completely unless they review their Wills, as many traditional estate planning arrangements will no longer apply. Those without children will not qualify for the new perk, as well as many business owners. Estates worth more than £2m will also be penalised. Currently, spouses and civil partners can pass all their wealth to each other without tax. However, tax may be payable when it comes to passing wealth onto other generations. Everyone can pass on £325,000 (the nil-rate band) tax-free. Nil-rate bands can also be passed between spouses. Now that a larger chunk of the family home can be passed on tax-free, professional advisors recommend looking into the most tax-effective ways to take income during retirement when people wish to pass on as much wealth as possible to the next generation. The new allowance is available only when estates are directly inherited by children, stepchildren, adopted children or grandchildren. It will not be available when property has been left in trust. Find out more about making a Will.