New Inheritance Tax Allowance For The Family Home

It was announced in the Summer Budget on 8 July 2015 that an additional inheritance tax ("IHT") nil-rate band will be introduced from April 2017 for the family home, so that a home worth up to £1 million can be passed on to younger generations free of IHT.

The idea of a £1 million IHT allowance has been part of the Conservative party's plans for some time, featuring in their manifesto for the 2015 general election, and reflects the long-standing realisation that the IHT nil-rate band has not kept pace with rising house prices, meaning that more and more estates have been pulled into the IHT net.

The additional nil-rate band ("ANRB") is a welcome reform to the IHT regime and will help many families, but there are limitations to it which, unless clarified when we get the draft legislation on 15 July, will create several potentially unfair scenarios.

The current nil-rate band is £325,000 per person, transferable between spouses and civil partners ( "spouse" hereafter refers to either.) The ANRB will apply on the death of an individual where their residential property passes to their children or grandchildren. If that individual is a spouse, any unused ANRB can be transferred to the surviving spouse. As gifts between spouses are free of IHT, the ANRB is not likely to be needed until the death of the survivor. It will be phased in from April 2017, when the ANRB amount will be £100,000, rising to £175,000 by April 2020; with the aim that, by 2020, the maximum nil-rate band available to the surviving spouse will be £1 million (made up of each spouse's NRB of £325,000 and each's ANRB of £175,000). The ANRB will be gradually withdrawn where the estate is worth more than £2 million.

Where an individual has more than one property, the individual's personal representatives can nominate any one to benefit from the ANRB provided it has been the individual's residence at some point. This looks to be more generous than originally proposed, as the property does not necessarily have to be the individual's "main" residence, meaning the most valuable property can be nominated. We will need to await the draft Finance Bill 2015 for clarification however.

The ANRB will be of great benefit to many families. However, those without children will not be able to take advantage; neither will those who rent their property as opposed to owning it. The former category could...

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