Britain’s inheritance laws underwent a huge but not unexpected change in Chancellor George Osborne’s Summer Budget.
In a manifesto promise first made before the coalition came to power in 2011, the Tories lifted family homes worth up to a £1 million out of the inheritance tax (IHT) net.
Married couples and civil partners now have the £350,000 nil rate IHT band plus £175,000 additional nil rate banding for their main home, taking their total allowance to £1 million. This stretching of the nil rate band is called the family homes allowance.
The IHT changes come into force from April 2017. For estates valued over £1 million, the tax rate remains at 40% – and that rate stays fixed until the 2020-21 tax year.
How much will you save?
If a couple downsize to a smaller home, the family home allowance is portable in a bid to encourage older couples to sell up larger homes in favour of families.
Financial firm Hargreaves Lansdown has calculated how the IHT rule change will affect singles and couples:
The reforms come at a time when HM Revenue & Customs (HMRC) is collecting record amounts of IHT for the Treasury coffers.
IHT raised £397 million in April 2015 – up on the average £260 million a month over the previous decade.
| IHT Changes - Single person | ||||
| Value of family home | Value of other assets | Value of estate | IHT now | IHT from April 2017 |
| £175,000 | £175,000 | £325,000 | Nil | Nil |
| £200,000 | £300,000 | £500,000 | £70,000 | Nil |
| £250,000 | £400,000 | £650,000 | £130,000 | £60,000 |
| £400,000 | £600,000 | £1,000,000 | £270,000 | £200,000 |
| £750,000 | £750,000 | £1,500,000 | £470,000 | £400,000 |
| £1,000,000 | £1,000,000 | £2,000,000 | £670,000 | £600,000 |
| IHT Changes - Married couple | ||||
| Value of family home | Value of other assets | Value of estate | IHT now | IHT from April 2017 |
| £175,000 | £175,000 | £325,000 | Nil | Nil |
| £200,000 | £300,000 | £500,000 | Nil | Nil |
| £250,000 | £400,000 | £650,000 | Nil | Nil |
| £400,000 | £600,000 | £1,000,000 | £140,000 | Nil |
| £750,000 | £750,000 | £1,500,000 | £340,000 | £200,000 |
| £1,000,000 | £1,000,000 | £2,000,000 | £540,000 | £400,000 |
| Source: Hargeaves Lansdown | ||||
