New main residence allowance
From April 2017, there will be a new main residence transferable nil-rate band, which will apply when a main residence is passed on to a direct descendant.
A direct descendent broadly means a child or grandchild and includes adopted children, foster children and stepchildren. The nil rate band, also known as the inheritance tax threshold is the value of an estate that is not subject to inheritance tax in the UK.
In the 2015 Summer Budget, the Chancellor introduced this new transferable main residence allowance, which will gradually increase from £100,000 in April 2017 to £175,000 per person by 2020-2021. Any unused nil-rate band can be transferred to a spouse or civil partner.
Who will be affected?
Those likely to be affected, who would otherwise have to pay an inheritance tax, are individuals with an estate that includes their home and is worth more than the current inheritance tax threshold (or nil rate band) of £325,000. Any part of the estate that exceeds this threshold is chargeable at 40%.
There has been some confusion surrounding who benefits from the allowance. The interest in the house must be “closely inherited” which means that it must be inherited by lineal descendants. If your Will does not pass your main residence on to your children in the correct way or you are in a childless family then your estate will not be entitled to the extra allowance.
This measure aims to reduce the burden of inheritance tax for families, enabling them to pass on more valuable family homes to direct descendants without being taxed. It is very likely to get a warm welcome by many families.
If you think you may be affected by the new main residence allowance or would like further information or advice, please contact one of our solicitors on 01283 526200.