How has the law regarding Inheritance Tax changed recently?


How has the law regarding Inheritance Tax changed recently?

Under previous law, individuals in the UK who owned an estate valued at less than £325,000 were not subject to an inheritance tax charge when they died, anything above this figure was taxed at a rate of 40%. The £325,000 allowance is known as a person’s “nil-rate band” and can pass between married partners, giving an overall £650,000 nil rate band for couples.

However since April 6th 2017 a new measure has been put in place allowing an additional nil rate band (applied to a person’s main residence) provided the property passes to a person’s direct descendants i.e. children or grandchildren (this also includes adopted, step and foster children). Initially this allowance will be £100,000 rising by £25,000 a year to £175,000 by 2020 meaning individuals will in the near future be able to dispose of up to £500,000 tax free and couples up to £1million between them.

This additional nil-rate band is also available when an individual downsizes or ceases to be a homeowner on or after 8th July 2015 and assets which are of an equal value (up to the value of the additional nil-rate band) pass to direct descendants of the deceased.

The new nil rate band will allow families to be able to pass on their family homes more easily without being subject to a large inheritance tax bill. However the nature of the law, which requires the property to pass directly to a person’s descendants, means that previously tax efficient Wills may no longer be appropriate for some people who may end up having to pay more tax than necessary.

In the circumstances it is advisable for anyone who made a Will in the past to make an appointment for their Will to be reviewed to ensure they pass on as much of their estate to their loved ones as possible.

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