Earlier this week, Chancellor George Osborne confirmed an increase to the inheritance tax (IHT) threshold for family homes. The announcement, made as part of his first wholly-Conservative Budget, had been widely expected, and means that almost a million more properties will soon be exempt from this form of tax.
Currently, inheritance tax is charged at 40% on estates over the tax-free allowance of £325,000, but from April 2017 everyone will be offered an additional "family home allowance" of £100,000, rising to £175,000 by 2020. This will effectively bring the individual IHT threshold up to £500,000, and given that married couples and civil partners can pass any unused allowance on to one another, it means that couples will soon be able to pass on assets worth up to £1m to their children.
Property website Zoopla estimates that 953,498 more properties in England, Scotland and Wales will be completely exempt from IHT as a result of the change, with beneficiaries in London and the South East standing to gain the most.
"Due to rising house prices, the number of families paying death duties would have soared in coming years, so the decision to increase the threshold is a sensible solution to a problem that was bubbling under the surface," said Lawrence Hall of Zoopla. "Most of us work hard our entire lives so that we can bequeath assets to our children and grandchildren, and the increased threshold means fewer families will be stung by the taxman after relatives pass away."
Essentially, the changes mean that more families will be able to pass on the family home without their children or grandchildren needing to pay inheritance tax, but single people can benefit, too – without the option to pass on any unused allowance to a partner, their home would have had to be worth less than £325,000 for their children to avoid tax.
Given the rocketing price of family homes these days, many people would have been caught out, so the fact that the individual allowance is rising will be welcomed by single parent families as much as any other. And, for those who may be concerned that the policy is favouring the rich, the new tax-free band will be phased out for homes worth more than £2m, so it shouldn't give too much cause for concern.
The move has been widely welcomed by the industry, with many commentators rejoicing in the fact that more families will be able to pass on the family home without being subject to a 40% tax charge, and after years of spending money on everything from refurbishing to mortgage repayments, it's great news that more children will be able to benefit in the long term.
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