Inheritance Tax is charged on the transfer of property passing on death (chargeable transfers) subject to various exemptions and reliefs, notably for certain business and agricultural property. It is also levied on certain lifetime gifts.
In the UK, death taxes were first introduced in 1796 to finance the war against Napoleon, but inheritance tax as we know it was implemented in 1986 and has gone through several changes since then.
The current situation is that inheritance tax is not payable on the first £325,000 of your estate when you die. It is then payable at 40% of everything above that threshold. However, inheritance tax is not payable when leaving assets to your spouse or civil partner. When the second one of you dies, both of your allowances (or nil rate bands) are put together, meaning that inheritance tax is not payable on the first £650,000 of your combined estate.
For many people, their most valuable asset is their home, and the value of the home is included in the calculation for inheritance tax. So many families find themselves with a tax bill when their only asset is said home. I have known cases where families have had no option but to sell the family home to be able to pay the inheritance tax bill.
In his Summer Budget speech 2015, Chancellor George Osborne recognised this issue. He stated that the wish to pass something on to your children is about the most basic human and natural aspiration there is, and that inheritance tax was only designed to be paid by the very rich. He stated that more families are being pulled into the inheritance tax net than ever before, and that the number is set to double over the next five years.
Under the new rules, coming into effect in 2017, the current £325,000 allowance still applies to the whole of your estate but in addition, a new £175,000 allowance is going to be phased in that will apply only to the family home if it is left to children and/or grandchildren. As before this can be transferred to your spouse or civil partner. As a result a couple can pass a family home worth up to £1 million to their children or grandchildren without paying inheritance tax.
However, should your whole estate (all of your assets together) be worth more than £2 million, you may not get the whole of the new allowance.
If you would like to arrange a will, why not contact me, Amanda Harris, Your Local Will Writer. You can find out what my clients have said about my work on my website www.alhlegal-willwriters.co.uk/testimonials or get in touch by phone 0115 8780417 or email at email@example.com
Please get in touch if you have any further questions about Inheritance Tax.