The Great Inheritance Tax Scandal?

We now have a Conservative Government that promised us – back in 2007 – a rise in the inheritance tax (IHT) threshold to £1m. But a decade later, are we getting that? 

After a decade of Conservative governance, in 2015, George Osborne created a package of policies that amounted to the magic £1m nil-rate band per couple, which raises the threshold for paying inheritance tax on an estate – something of interest to those inheriting large sums and property. (note that this wasn’t per individual, as some pundits had thought it might be).

So, what are the new measures that fulfil this promise?

First, a completely new, separate nil-rate band. The new main residence nil-rate band (RNRB) was introduced as an additional nil-rate band, acknowledging when a residence is passed on from death to a direct descendant. This will be:

  • £100,000 in 2017 to 2018
  • £125,000 in 2018 to 2019
  • £150,000 in 2019 to 2020
  • £175,000 in 2020 to 2021

After 2021, this will increase in line with the Consumer Prices Index from 2021 to 2022 and onward. For estates valued at more than £2m, there will be a tapered withdrawal of the additional nil-rate band – a rate of £1 for every £2 over the threshold.

While we would never wish to look a gift horse in the mouth, a quick glance at the details reveals that the £1m nil rate figure might not be all that accurate for those whose estates exceed – or might exceed in the future – the current existing nil rate band of £325,000 (or £650,000 for couples with qualifying transferable allowance). So, what can we glean from the details?

Peeling back the media circus

For Mr Osborne, who was responsible back in 2015 for introducing these new measures, he could claim to the media that he had delivered his £1m promise. If you add the existing nil-rate bands to the new one just introduced, you’ll have an aggregated £1m allowance threshold by 2020/21.

This was great for the headlines. But it could lead many to complacency, as people might believe their estates shy of IHT liability, but later find that the inherent complexity of the new proposition has masked their true position.

For example, before the new measures were introduced in 2015, many people will have taken steps to write their properties into a discretionary will trust. However, to qualify for the new additional nil-rate band, a property needs to pass directly to relatives – either absolutely, or as an immediate post-death interest, or the allowance is not granted.

Therefore, anybody who believes they qualify should seek advice on their wills as a priority. At gpfm, our financial planners can advise on all your estate planning needs. The complexities of this subject matter mean that having a professional look over your full estate can be of tremendous value to you and your loved ones. Call us today on 01992 500261 or contact us online.

This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions. Investments can go down as well as up and you may get back less than you invested.