More than 1.7 million people aged 55 plus could miss out on the upcoming increased nil-rate inheritance tax band because they have assigned their sibling to inherit their family home and not a direct descendant, according to LV Legal Services.
The legal arm of insurer LV found one in 10 of those aged over 55 have nominated a sibling to inherit their wealth, which would disqualify them from using the additional nil-rate allowance.
From 6 April 2017, when the inheritance tax free allowance for the family home will be introduced with an initial allowance of £100,000 per person per family home, the total maximum individual personal allowance for inheritance tax will increase from the current level of £325,000 to up to £425,000, or a total of up to £850,000 for married couples.
If an estate of a married couple is left to a sibling then anything above the current limit of £650,000 or the new combined threshold £850,000 will be taxed at 40 per cent.
The allowance for the family home then goes up by £25,000 per tax year, so by 6 April 2020 onwards a couple with a family home will be able to leave their children or other direct descendants a combined estate of up to £1m without any inheritance tax to pay.
However, if the same couple were to leave their family estate to a sibling, the inheritance tax bill of 40 per cent would apply on the difference between £650,000 and £1m, leaving a tax bill of up to £140,000.
The majority of 1,000 people (72 per cent) polled by LV in December did not know of or understand the changes that come into force in the new tax year.
Martin Milliner, director at LV Legal Services, said: “Getting the right legal advice and amending your will could take a few hours, but with potential to save a lot of money it’s time well spent.”