Inheritance Tax threshold rises

People may recall George Osborne pledging to raise the Inheritance Tax threshold while in opposition as the Shadow Chancellor.

Today’s Budget has seen him following through with this, as the Inheritance Tax threshold is being increased. Under the current legislation, Inheritance Tax is payable on the value of a net estate in excess of £325,000 (at a rate of 40 per cent), £650,000 for a couple. The Inheritance Tax threshold is transferable between persons who are married or in a civil partnership.

The new proposals will raise the Inheritance Tax threshold to £500,000 by the introduction of a new ‘zero-rate band‘ of £175,000 on a main property when it is passed, in the event of death, to a child or grandchild. This creates a £1m Inheritance Tax ‘limit ‘for couples.

This is welcome news where the family home is intended to be left to children as in most cases it would lead to the property being passed on free of Inheritance Tax.

Some opposition comments suggest this will lead many to put their wealth into their property, so as to pass on their estates to the next generation tax free. This is said to have a direct effect of pricing many out of the property market. Nevertheless, our experience in administering hundreds of estates in the recent years has shown property prices to be the largest contributor to Inheritance Tax liability. All too evident through the reduction in inheritance passed on to concerned beneficiaries. The changes will no doubt alleviate this Inheritance Tax burden on families where the property is the main asset.

However, we must not forget that, even with these favourable Inheritance Tax changes, the need for estate planning in relation to the family home is important for other reasons. Residential and nursing care fees, insolvency of, or re-marriage of, a surviving spouse, are equally important reasons to plan an estate through a Will to ensure assets are protected for the next generation in the event of the first death. In addition, there are still considerable Inheritance Tax planning benefits through Will planning to consider for married couples or civil partners who are business owners. We have considerable expertise in advising on a range of estate planning measures to compliment the Budget announcements.