Downsizing and inheritance tax

Fred_Bear_2

The rules as I understand them:
Present IHT allowance is £325,000.
In 2017 homeowners leaving their home to descendents will have an additional £100,000 allowance.
Why could 'downsizing' have made a difference to this?

xylophone

1.219 The government will achieve this by taking the family home out of inheritance tax for all but the wealthiest with a new transferable nil-rate band, introduced from April 2017. This will apply when a main residence is passed on death to direct descendants, such as a child or grandchild. The allowance will be up to £100,000 in 2017-18, up to £125,000 in 2018-19, up to £150,000 in 2019-20, and up to £175,000 in 2020-21. This is in addition to the inheritance tax nil-rate band, which is set at £325,000 for the estates of individuals. This creates an effective £500,000 inheritance tax threshold for estates in 2020-21. As with the current nil-rate band, any unused main residence nil-rate band will be transferred to a surviving spouse or civil partner and means the effective inheritance tax threshold will rise to £1 million in 2020-21.

1.220 The new main residence nil rate band will also be available when a person downsizes or ceases to own a home on or after 8 July 2015 and assets of an equivalent value, up to £175,000 in 2020-21, are passed on death to direct descendants. For example, an individual might choose to downsize from a home worth £200,000 to a home worth £100,000. They could still benefit from the maximum allowance of £175,000 in 2020-21 if they leave the home and £75,000 of other assets to direct descendants. They will only be liable to inheritance tax if the total estate exceeds £500,000. The new thresholds are illustrated in chart 1.17.

Fred_Bear_2

Thanks xylophone. I haven't been able to find that info anywhere. I suppose you couldn't provide chart 1.17 as well could you?

getmore4less

I can see this will cause a bit of house flipping to get the full allowance for those that have downsized already.

Not seen the detail what is the definition of home

Does it include property that was a gift with reservation?

AShandall

So with new rules for a married couple you could have a house worth 550,000 and other assets worth 450,000 and not pay inheritance tax??

getmore4less

This is wrapped up as a house relief.

The reality is there will plenty of people with modest houses and loads of dosh, £175k/£350k now gets taken out of the nil rate band if it is in property giving room for more other assets.

xylophone

Thanks xylophone. I haven't been able to find that info anywhere. I suppose you couldn't provide chart 1.17 as well could you?

Page 49

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/443232/50325_Summer_Budget_15_Web_Accessible.pdf

Fred_Bear_2

Thanks xylophone. The official document is so much clearer and easier to understand than reports in the media.

mighty_4

hi I'm new to the forum but am very interested to follow this discussion as I have POA for my mum who is unwell. My question is one of what 'main residence' means. Point taken that downsizing a property is allowed for. But is it the case that the deceased would have needed to have lived in the property at some point? eg. I I legally transfer ownerships of both our houses (of similar value at the moment) would it fall outside of IHT changes as she would never have lived in my house but now owns it? If I rent out that property to assist with her care needs going forward does it inadvertently put the family at disadvantage later at her time of death? My hope is to not be a burden on the state with her care, and for us all to live in a sustainable set up.

kkgree1

This is really useful information, thank you.

My mother-in-law has just sold her main residence to pay for care home fees and it appears her estate will potentially miss out on the new IHT band having sold on 26th June.