New inheritance tax rules: who actually benefits?
If losing your loved one isn’t enough grief, there then comes the added complication of dealing with inheritance tax.?The rules themselves have not changed since 2009, however the amount of estates giving rise to an inheritance tax liability has increased abruptly with tax revenue multiplying over the last 30 years.
There?s a misconception that inheritance tax is only something the rich pay, however this is not the case and inheritance tax is in fact also very much a middle class problem. It transpires when the value of the deceased?s estate is above their applicable threshold ? and it can really add up.?40pc of everything you own above your threshold will then be taxed.
Of course there are a variety of measures in place that one can take to decrease or even eliminate your liability, but this takes sufficient planning which many do not do meaning your loved ones are generally left to settle your estate before any inheritance is received.
However, on the positive side, inheritance tax rules are finally changing following years of political grandiloquence, and in July of this year the (majority-ruling) Conservative Party delivered a pledge it initially made in 2007, the pledge to increase the thresholds.
Currently, the inheritance tax threshold is ?325,000 for the single or divorced, whereas for the married or a widow/widower it is up to ?650,000. But starting from April 2017, the Government will slowly introduce a new ?main residence? nil rate banding for handing down your home originally worth ?100,000 per person, rising to a value of ?175,000 by 2020. In addition to your existing threshold, a married couple or widower will then be able to pass on up to ?1 million inheritance tax free. Do note, that this additional allowance can only be used on your main home.
Granted, the news of this new rule will benefit thousands of families, seeing less estates generate a painful tax bill of 40pc, but unfortunately not everyone will benefit.
In order to qualify for the additional ?main residence? nil rate band, your home may only be left to a direct descendent (child or grandchild) any other family members, be that a niece, cousin etc. will not be entitled to use this allowance. And if you have no offspring, then the threshold stands at ?325,000 or ?650,000.
There are a number of inheritance tax planning solutions available, and the best place to start is to weight up whether or not you have or may have an inheritance tax liability. Roughly estimate the value of your assets, and if you feel you have an inheritance tax liability, to save time and money down the line, you could consider taking further action.
Inheritance Tax (?IHT?) can be saved by the Sovereign Estate plan immediately and substantially by reducing the amount of the Estate chargeable to IHT and, after 2 years, by further Business Property Relief. Sovereign Estate is designed for individuals and is effective for Limited Life Planning.
To read more on our Sovereign Estate product click here. Alternatively, to get in contact with one of our advisers call 01273 766 399 or email firstname.lastname@example.org for further information.