From 6 April 2017, a new Inheritance Tax (IHT) relief is being introduced that will benefit homeowners in the UK. With house prices having risen rapidly over the years, the family home is a substantial asset for many families – and a potential IHT liability.
The relief will add an extra 'tax-free' band in addition to the current nil-rate band of IHT of £325,000. The relief will start at £100,000 and rise in stages to £175,000 by April 2020. It is important to note that the relief will only be able to be transferred between spouses and civil partners, not between couples who live together. It will apply in respect of the 'family home' only.
In order to obtain the relief, the family home will have to pass to a direct descendant of the deceased person. The relief will be restricted for those whose estates exceed £2 million.
The relief will also not apply to couples with no children, as they have no direct descendants. The term does, however, include the spouse or civil partner, or the surviving spouse or civil partner who has not remarried, of a direct descendant.
The change will be welcomed by many whose wealth is tied up in their home. The requirement that IHT is paid on account before probate is granted is an onerous one for many, and this new relief will provide a measure of mitigation.