The New Inheritance Tax Rules Are Not For Everyone

Posted on 26 Aug 2016

A report from accountants Saffery Campness which was commissioned by the Daily Telegraph has calculated the potential cost of delaying the new Inheritance Tax rules.

Last April’s budget saw the British Government announce an increase of the Inheritance Tax threshold to “one million pounds” but this headline figure is misleading. Currently an individual estate with less than £325,000 will have no Inheritance Tax to pay. If this allowance is not used, it can then be passed on to the estate of the deceased’s spouse or civil partner; effectively providing a limit of £650,000 before Inheritance Tax is payable.

When that limit is reached-  payable Inheritance Tax is calculated at 40% and then charged on the rest of the estate. These rules are remaining in place. The government has added in a new allowance for property, on occasions where the house is the deceased’s residence and is then passed on to a child or grandchild or other linear descendent. This allowance will apply to estates from April 2017- initially for the first £100,000 worth of property (or £200,000 for couples) rising to £175,000 (£350,000) by 2020.

The existing allowance of £650,000 for couples, plus the £350,000 property limit will – eventually – give couples a grand total of £1 million to pass tax free to their children.

Using data from HMRC Saffrey Campness have worked out that nearly 30,000 families are set to pay up inheritance tax in the next two years which would not be chargeable after that. The government’s delay in implementing this new tax regime will cost those families dearly.

We don’t get to choose when we die, so it feels somewhat unfair and slap-dash to announce a tax saving change but then not enable every citizen to have the benefit of this.

As Inheritance Tax becomes increasingly convoluted and even somewhat “hit and miss” then some forward thinking and financial planning is evermore essential.

By Siân Thompson – Solicitor specialising in matters of Probate Law such as Wills, Trusts & Estates. She is a court-appointed Deputy for clients under the Court of Protection and also acts as a professional trustee and attorney, as well as being STEP qualified and a full member of Solicitors for the Elderly.