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Government Scraps Inheritance Tax for Homes Valued Up To £1 Million
George Osborne gave some welcome good news to homeowners in his 2015 summer budget when he announced the inheritance tax (IHT) threshold would be raised to £500,000.00 per person. This means that a married couple who own a home worth up to £1 million will not be required to pay any IHT at all if they wish to pass their home onto their children.
For those with family homes in London and the South East, where house prices have risen sharply over the last few years, this will provide homeowners with a sense of relief that the Government is at last levelling out the playing field when it comes to family homes being subject to IHT.
What is the Current IHT Threshold?
Since 2009, the IHT threshold has remained at £325,000 per person. House prices have soared since the threshold was set, with London´s average house price now 35% higher than at its peak in 2007. In the South East of England house prices are now 9.7% above their 2007 peak.
Married couples are entitled to combine their allowance together, allowing for a threshold of £650,000 before the provisions of IHT are triggered. Once the threshold is reached, IHT is payable at 40% on the value of the estate over and above the £325,000 (or £650,000).
What Will Change?
From 6th April 2017, parents will be able to add a further £175,000 to their individual £325,000 threshold (known as the ‘family home allowance’) to enabling a married couple to pass property valued at up the £1 million onto their children or relations tax free.
What if a Person Chooses to Downsize to a Smaller Home?
If individuals decide to downsize their home at any stage, they will be eligible for an “inheritance tax credit” so that even if they sell an expensive property they will still qualify for the new threshold.
Before the 2015 election, the Chancellor stated that the planned IHT reform "supports the basic human instinct to provide for your children".
For more details contact David Chandra – 0208 290 7348 dchandra@judge-priestley.co.uk