Industry experts are now predicting a rush in £1 million home valuations following the change to the inheritance tax (IHT) threshold which was announced in this week’s Budget.
So what does this mean for the average UK resident?
IHT has now risen from £650,000 to £1 million for married couples and civil partners who are passing on the family home and was confirmed in the Summer Budget. The move, which was outlined in the Conservative manifesto, will be effective as of 6th April 2017 and means that 94% of UK households are now exempt from the tax.
Under the previous rules, IHT was charged on estates worth more than £325,000 at 40% of the excess value of assets above the threshold and was remunerated out of the estate of the deceased.
The increased threshold effectively means couples are able pass on a tax-free £350,000 home allowance to their beneficiaries.
Almost one million properties in England, Scotland and Wales could benefit from the Chancellor’s decision to raise the IHT threshold, according to property website Zoopla. The change takes the total number of homes exempt from IHT from 26.33 million to 27.28 million (an increase of 953,498).
Zoopla analysis revealed that those living in London stand to gain the most from the increased threshold, with 428,011 extra properties escaping IHT. And nearly 250,000 more homes in the South East would also be exempt.
Maike Currie, Associate Investment Director at Fidelity Personal Investing, said: “Read the Budget fine print and you will see the inheritance tax nil-rate band is currently frozen at £325,000 until April 2018 and this is where it will stay until April 2021. What the government is proposing is an additional band which will be introduced progressively – £100,000 in 2017/18, up to £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21. From 2021-22 onwards it will increase in line with inflation.
“The Institute for Fiscal Studies (IFS) said the new ruling would disproportionately benefit wealthier people and could have a negative effect on the property market if elderly homeowners were discouraged from downsizing. The changes, likely to cost about £1bn, will be paid for by reductions to tax relief on pensions, possibly through lowering the amount available to top-rate taxpayers from £40,000 to £10,000 a year on a sliding scale.
“The IFS described the inheritance tax pledge as special treatment for homeowners. Paul Johnson, the director of the IFS, told the BBC that it was “rather odd to give this special treatment to housing given that owner-occupied housing is already extremely tax privileged.”
A briefing note said: “Since the children of those with very large estates are disproportionately towards the top of the income distribution, the gains from this and in fact any IHT cut will also go disproportionately to those towards the top of the income distribution.” Do you agree with the comments made by the IFS?
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