A major change to inheritance tax rules could make a massive difference to the value of assets Lancashire families can pass on to their loved ones.
Presently, individuals are allowed to leave an estate worth as much as £425,000 to their children and grandchildren. But from April 1 this figure will rise by an extra £25,000 per person.
Berin Jones, private client partner at WHN Solicitors, which has seven offices across Lancashire and Greater Manchester, said: “Put simply, if you are planning to pass on assets or money after you pass away, those you leave it to could be looking at a substantial tax bill. However, a certain amount can be passed on inheritance tax-free. This allowance is technically called the nil-rate band.”
Berin continued: “Everyone has a tax-free allowance of £325,000, which has stayed the same since 2010-11 and is set to remain frozen until at least 2019. But if you pass on your home to your children – including adopted, foster or stepchildren, or your grandchildren – your ‘family home allowance’ takes the tax-free total from £425,000 to £450,000 in the current financial year (2018/19).”
Anything in excess of the allowance will be taxed at 40 per cent, although if an estate is left to a spouse, civil partner or charity, it will not be taxed, irrespective of value. In addition, individuals are allowed to donate a certain amount of money during their lifetime, tax-free and without it being included in their estate for inheritance tax purposes.
The latest changes are part of government policy to enable couples to pass on an estate worth up to £1 million to their children or grandchildren, tax free, by 2020.
Last April (2017) the government announced that the tax free threshold would increase by an additional £100,000 per person, with the phasing in of a further £25,000 allowance per year until it reaches £175,000 per person. This means an individual would then have a tax free allowance of £500,000.
Berin added: “This additional allowance can be set against the value of a residential property. As a result, by April 2020 a couple can avoid the inheritance tax net on £1 million of their wealth, provided their main residence is passed to their children or grandchildren.
“Inheritance tax and estate planning is a complex area of law, so it’s important to seek specialist advice to manage your tax liabilities.”