Inheritance Tax  

IHT advice needed as relief set to rise

IHT advice needed as relief set to rise

Individuals whose home is worth up to £2m should start preparing for an expansion in the nil rate band for inheritance tax due, according IFA firm Strabens Hall.

The nil rate band rises from its current limit of £325,000 to £425,000 in April. It will rise at an additional £25,000 a year until the 2020/21 tax year when the nil rate band will reach £500,000.

Where the main residence is owned by a couple, the nil rate band will effectively be £1m.

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The tax exemption only applies to an individual's main residence where the worth of the property is below £2m. After this figure is reached there is a tapered withdrawal of the additional nil-rate band of £1 for every £2 over this threshold. Thereafter the estate will be taxed at a rate of 40 percent.

Adam Benskin, director at Strabens Hall, said: "For people who own up to £2 million this could make a big difference in the value they pass onto the next generation." 

However, he warned that the new allowance would not apply to those who made a gift of their main residence and who then died within seven years of making the gift.

He added that individuals might also need to review life insurance policies aimed to help mitigate inheritance tax charges paid by their children. Such policies are often put in place to avoid children having to sell the property to pay the tax incurred.

Benskin said there had been some speculation that the prime minister Theresa May would scrap the increased tax exemption which was brought in by George Osborne when he was chancellor in 2015.

The change has been estimated to cost the government around £940m in 2020, but Benskin thought its popularity with Middle England voters could counter this.

"This maybe a u-turn too far, particularly if Teresa May calls an election sooner than 2020," he said.