No more Inheritance Tax on the family home?

Wed 08 Jul 2015

From 5 April 2017 there will be a new £175,000 allowance on homes left to children and grandchildren. At the same time the Chancellor confirmed that the current nil rate band of £325,000 will be fixed until 2020/21.

Both allowances can be transferred to a spouse or civil partner with the result that £1 million can be passed to the next generation tax free and the Chancellor claiming an end to Inheritance Tax on the family home. As straightforward as it seems?

Yes and no.

The measure introduces an additional nil rate band when a residence is passed to a child or grandchild. What the Chancellor failed to mention however is that there will be a phased introduction of the £175,000 allowance highlighted in the budget speech. This will be £100,000 in 2017/18, £125,000 in 2018/19, £150,000 in 2019/20 and £175,000 in 2020/21. In other words it will be 2020/21 before it will be possible to pass on £1 million tax free.

Additionally it has been announced that this additional nil rate band will be available to those who choose to downsize or cease to own a home from 8 July 2015 and assets of an equivalent value are passed on death to direct descendants. This in itself could pose some interesting challenges in terms of record keeping.

There will be a tapered withdrawal of the additional nil rate band for estates valued in excess of £2 million. This will be at a withdrawal rate of £1 for every £2 over this threshold.

It is anticipated that this measure will reduce the burden of Inheritance Tax for most families by allowing them to pass on the family home tax free but perhaps does not quite signal a complete end to Inheritance Tax on the family home.

For more details contact liz.ritchie@mazars.co.uk