Families faced with 80% Inheritance Tax bill

Although George Osborne, the previous Chancellor, had introduced measures to ensure that family homes would not be subject to Inheritance Tax, it seems that some children or grandchildren will still be faced with a tax bill of 80%.

The “residence nil rate band” was introduced by the former Chancellor Osborne, and is added to the current Inheritance Tax allowance of £325,000 for each person. The new allowances will be introduced from April 2017, when every person will be given an extra £100,000, making their tax free allowance £425,000. The residence allowance will rise each year, until it reaches £175,000 by 2020-21. At this point, a couple would have a total allowance of £1m.

However, according to Alistair Cunningham, a director of Wingate Financial Planning, the residence allowance is gradually reduced for estates with a value of £2m or more. Once an estate is worth £2.2m., the residence allowance is not worth anything. If an estate has a value of £2m, the full residence allowance of £200,000 for a couple would mean that there was an exemption of £850,000 on the estate. The estate of £2.2m would only benefit from the current £650,000, meaning that 80% tax is charged on the extra £200,000 value.

While the threshold of £2m remains fixed and the residence allowance increases until 2020-21, the difference payable will become much more pronounced over time. If this could be an issue, individuals are advised to seek professional wealth management planning, so that they can minimise the Inheritance Tax payable for loved ones.

Inheritance Tax Planning advice is not regulated by the Financial Conduct Authority.

Sources: http://www.telegraph.co.uk/tax/inheritance/inheritance-tax-shocker-families-will-pay-80pc/