the voluntary tax
February 8, 2017
Inheritance Tax, otherwise known as ‘the voluntary tax’, is a tax on the estate of someone who’s died.
Typically there is no Inheritance Tax to pay if;
- The value of the estate is below £325,000 threshold
- You leave everything to your spouse or civil partner, charity or club.
In 2015, the Inheritance Tax was changed to allow people to pass on more to their children or grandchildren without being taxed. However, a new limit is set to be introduced in April which will allow individuals to pass on estates valued up to £500,000 tax-free.
Both married couples and civil partners are currently treated as individuals, each allowed to pass on their full allowance. The allowance is also transferable even if one partner dies before April 2017.
How does inheritance tax work?
Currently, each individual is tax at a rate of 40pc on all his or her assets above the threshold. This threshold is £325,000, but from April a new, higher threshold including a “family home allowance”, will begin to be phased in.
How will it change?
The new 2015 Budget introduced a new provision that allowed individuals and married couples the opportunity to pass on their main home with a smaller tax liability.
In 2017-18, the tax liability will be worth £100,000 but will gradually get bigger over the coming years.
However, there is a catch. This total must include a “family home”, which must be the main property. Buy-to-let and second properties will add to the total size of the estate as normal.
This means that married couples will be able to pass on estates worth up to £1m to their direct descendants, including a family home.
How will this affect my tax bill?
This change will bring down costs for all estate sizes including family homes. If you own a small estate you will still be exempt from inheritance tax, but larger estates which included family homes will have up to £140,000 extra tax-free allowance, for married couples.
The additional allowance will gradually be withdrawn for properties worth more than £2m.
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