An Inheritance Tax Update – The Family Home Allowance

From April this year, the family home will benefit from an additional inheritance tax allowance of £100,000. This may give rise to a potential nil-rate threshold of £1 million for spouses and civil partners by 2020/21.

Currently inheritance tax is charged at 40% on estates worth more than £325,000, or on estates worth more than £650,000 for spouses and civil partners. This is subject to other potential factors like the impact of gifts made in the seven years before death.

From April 2017, each individual will be offered a family home allowance so they can pass their home on to their children or grandchildren tax-free after their death. This will be phased in to start from £100,000 and will increase by £25,000 each year until the additional amount hits £175,000.

The additional allowance is specific to a residential property of the deceased's and not the rest of their estate. A £2 million estate for example, comprising just stocks and shares and no residence will not get the additional allowance.

It is only available where the residence passes to the deceased's descendants or their spouse and then their descendants. These can include step-children, adopted children, fostered children and children that the deceased had guardianship over.

If an estate has a net value of £2 million or more, the additional nil rate...