The Government recently introduced an additional inheritance tax allowance under the guise of the ‘family home allowance’ and which will eventually be worth an additional £175,000 per person. The current allowance of £325,000 which all homeowners are entitled to will eventually increase to £500,000 for individuals and £1 million for couples.
The Chancellor announced in his Summer Budget speech that there would be an allowance specifically for anyone who owns their own home and wishes to leave it to direct descendants. Dubbed the “main residence nil-rate band”, it will apply only to residential property left at death to children or other direct descendants.
The new additional benefit will be transferable between married couples and civil partners and is set to be introduced over the next 4 years as follows:
- £100,000 in 2017-18
- £125,000 in 2018-19
- £150,000 in 2019-20
- £175,000 in 2020-21
How would this affect persons who have children or grandchildren that live outside of the UK and wish to leave their property to them?
To qualify for the new allowance, the property must have been the main residence at some stage and be gifted to one or more direct descendants including children, stepchildren, adopted or foster children and grandchildren. There is no obligation for that beneficiary to actually then live in the property. Following an update of legislation, this now also includes a spouse or civil partner of a direct descendant or a surviving spouse or civil partner if they have not remarried or formed another civil partnership.
Is this a common dilemma faced by your clients?
Stefanie Stapleton, of accountancy firm Blick Rothenberg, said there is no requirement for children or grandchildren to be UK resident, or for them to live in the property. She stated: “You could sell your main residence and, provided the proceeds or assets are equal to the proceeds inherited by your child/children and grandchildren then the allowance will still be available.”
HMRC have stated that buy-to-let properties do not qualify.
With the new allowance homeowners can sell their property (on or after 8th July 2015) and still pass on the equivalent value to their children and grandchildren. However, an estate that is valued at more than £2 million will lose some or indeed all the new allowance and which will be tapered at a rate of £1 for every £2 over the £2 million threshold.
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