As safe as houses… more IHT

As safe as houses…. more IHT

You have probably heard that the nil rate band or inheritance tax allowance is increasing on a main residence, provided that it is inherited by your family and provided that it isn’t worth too much. As probably intended, many are under the impression that this new “£500,000” allowance has started… it hasn’t and many will not see the benefit.

For starters, the new “Main Residence Nil Rate Band” … MRNRB is being gradually introduced from April 2017 starting with an extra £100,000 rising each tax year by £25,000 until the full extra £175,000 becomes applied from April 2020. However if the net value of the estate is worth more than £2m, then this extra allowance is gradually lost. I think that’s called giving with one hand and taking with the other and of course is ignored by those who think that this is a tax break for the super rich…. reality is quite different.

IH405

IHT405 is the form you use to tell HMRC about all of your properties upon death. Have a look at the form, the valuation of a property (or plural) can and will make a considerable difference to the value of an estate. If you have a second (or further) property, then please keep really good records about it. This includes dates and purchase prices, valuations, work done, insurance costs and so on. You need to be fastidious in your record keeping… not least because these records may also be pretty vital whilst you are alive.

Getting your house/s in order

If you have acquired property over the years, perhaps just for your own family use or perhaps as a commercial concern to generate rental income, this all needs accounting…(sorry for stating the obvious). The value of property obviously changes and there is some degree of flexibility in how this is valued for probate… on the basis that what someone will actually pay for a property is more fluid than a simple figure.

As an aside, landlords that are off-setting interest against rental income, thereby reducing profit and tax, are having the amount permitted altered (another feature of the last Budget). So beware! Also as an aside, those with second properties that have soared in value are loaded with capital gains and thus subject to capital gains tax. There are ways to manage this… which I shall outline at another time – but be advised that there are solutions that may appeal.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

As safe as houses… more IHT2025-01-21T15:48:51+00:00

Estates: Inheritance Tax

Estates: Inheritance Tax

So it’s 8th July already and into the second half of the Wimbledon  Championships. Looking at your own life, which half do you imagine you are in? (ouch… didn’t see that coming!). Like most people inheritance tax (often referred to as IHT) probably isn’t something that is top of your current concerns (you don’t pay it) however it is a tax that generates more ire than most. In essence, inheritance tax is paid by the Executors of an estate following someone’s death. The amount of tax due will depend on the value of the estate and how it was arranged.

Today the Chancellor will give yet another Budget, but this one, the first as a Conservative Government. Like many I shall be waiting to hear what he says and see how he plans to deliver it. One of the pre-election manifesto promises was to increase the threshold for inheritance tax, perhaps to £1,000,000 for a couples main residence.

He may be less willing to follow through with this now as it was announced that in April HMRC collected £397m as inheritance tax payments, the largest in a single month and way above the longer term average of £260m a month. In fact March, April and May 2015 saw over £1bn of inheritance tax paid to HMRC. If interested, you can see the various taxes collected by HMRC from the data they published at the start of the month, just click here.

The Budget 8 July 2015

We shall simply have to wait for the Chancellor to tell us how and if he intends to adjust the nil rate band (the amount an estate can be worth before any inheritance tax is payable). The nil rate band has been frozen at £325,000 since 2009 and had historically increased with inflation each year, but of course that was before the credit crunch. As ever our APP will be updated with all the changes as quickly as possible (usually before the end of the day). Don’t forget it’s free and easy to use.

Pensions and ISAs are now IHT friendly

The main gripe is that property has continued to soar in value and is invariably the main asset that is left once someone dies. The pension freedom rules have enabled pension funds to be exempt from inheritance tax (though some taxes may apply) and ISAs are able to be passed on to a surviving spouse (previously they would have lost the tax-free status of an ISA).

As a result more people, or rather estates have been brought into the inheritance tax threshold, probably not the original intention of the tax. However the Chancellor will be seeking some wriggle room to keep things as they are given that it raises such significant sums for the Treasury.

A 40% tax rate

As of this morning, inheritance tax is charged at 40% on the excess value of estates worth £325,000. Each individual has a nil rate band and so a couple effectively has a nil rate band of £650,000. In addition, for those that have been previously married to someone now deceased, it is possible to use part of their allowance too.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

Estates: Inheritance Tax2025-01-21T15:48:52+00:00
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