Back in 2010, the Conservatives promised that the inheritance tax allowance would rise, but instead it Was frozen until 2017. Before the last election, the promise was repeated and this time some action was taken.
The allowance of £1m for couples will only apply in certain circumstances. The new rules won’t fully apply until the 2020/21 tax year, by which time we may have a different government which may not be quite so keen to offer this sort of tax break; secondly the extra allowance of £175,000 can only be used against a property that has been at some time the main residence of the deceased; and thirdly, the property must be left to children or grandchildren. This means that those without children will not benefit from the new allowance. It also means that anyone who has put their main residence in a trust during their lifetime (something that is never a good idea, but still often happens), will not qualify for the allowance.
Many wills that were written before July this year will now need to be reviewed, especially if they leave the main residence to a trust on death.
The new allowance is also gradually lost when the estate value rises above £2m and for a married couple, disappears entirely for estates over £2.7m. The chancellor also froze the standard allowance at £325,000 until the 2020/21 tax year which will result in the larger estates paying significantly more tax.
Despite all of this, inheritance tax remains the easiest tax to plan to avoid. There are many approved strategies using trusts and investments that can reduce the potential tax, some of which are effective immediately, some which take two years to be effective and others that take seven years to reduce the tax.
Whatever strategy is adopted, it is important to take specialist planning advice and it is important to have a flexible strategy that can be easily adapted should a future government move the goalposts once again.
David Hill is a Chartered Financial Planner and Independent Investment Adviser at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814, email firstname.lastname@example.org or see www.hillsfinancialplanning.co.uk