A legal expert has urged caution over changes to inheritance tax (IHT), which were outlined by the chancellor George Osbourne when he announced the summer budget.
Prior to the budget, Kathryn Harwood, head of Wills & Estate Planning at Napthens solicitors, reports there was speculation over whether the IHT allowance for a property could go up to £1m for a married couple.
Inheritance tax is due on assets left behind by a person when they die, but only if the value exceeds a certain amount, known as the ‘threshold.’
Under the current rules, 40 per cent tax is payable on the total value of assets above the threshold of £325,000 per person, which has been fixed since 2009.
Kathryn warns that now the chancellor’s statement has been made, there is more to the plans than many people will be aware of.
The chancellor announced that as from April 6 2017, there will be a phased increase to the IHT threshold giving each individual an additional allowance in respect of a family home which, by April 6, 2020, will reach £175,000.
This means no IHT would be due on a married couple’s home worth up to £1million.
It will then increase in line with the consumer price index from April 6, 2021 onwards but it will only be available where a residence is passed to a direct descendant which will include step-children and foster children.
Kathryn explained: “Any increase will only apply to a residence where it’s been bequeathed to a direct descendant. The increase is also being phased in beginning on April 6, 2017, only reaching the much-lauded £1m figure in the tax year April 6, 2020.
“This is clearly welcome news, but the increase in the threshold is not going to offer immediate benefit and is going to be more restrictive than people might have hoped. It is still important for people to look very carefully at their IHT planning.
“Because of the complexity of what is proposed, it is also likely that people will need more professional assistance when dealing with the estate of a relative.”