Chancellor George Osborne announced in the Summer Budget that the Government would add an additional £100,000 'main residence' property allowance in April 2017, rising by £25,000 each year until it reaches £175,000 in 2020.
This means that in 2017, the amount that can be passed on tax-free will be £850,000, made up of the standard £325,000 (the current nil-rate band will remain frozen at £325,000 until April 2021), plus the new £100,000 for the main residence, meaning a total of £425,000 per person. When the first partner dies and this is passed on to the survivor, this takes their allowance to £850,000.
By 2020 everyone will be able to leave a £500,000 estate without their descendants having to pay any tax on it, so married couples and civil partners will be able to leave assets worth up to £1m tax free.
It was also proposed that this new 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 the value of the additional nil-rate band, are passed on death to direct descendants. Final details are subject to a technical consultation.
However, anyone with a property worth £2 million or more won't get the full benefit of the new proposals. For every £2 of value over £2 million, £1 of the main residence property allowance will be deducted.
IHT and non-domiciles
From April 2017 the point at which a non-domiciled individual is deemed domiciled for IHT purposes will change to 15 out of 20 years. It is also intended to treat individuals who were born in the UK to parents who are domiciled here, as UK domiciled while they are in the UK.
From April 2017 IHT will be payable on all UK residential property owned by non-domiciles, including property held indirectly through an offshore structure regardless of their status for tax purposes. A detailed paper was also published which it is intended to provide a basis for consultation later in 2015.
Pensions
It was also announced that from April 2016 there will be a reduction in the £40,000 annual pension allowance where income, including pension contributions exceeds £150,000 The annual allowance will reduce by £1 for every £2 of income in excess of £150,000, down to a minimum of £10,000.
A consultation document was published which will further look at a reform of pensions tax relief. This will include reviewing whether the taxation of pensions should be more closely aligned with the taxation of ISAs.
For more information contact Peter McGeown on E-mail: petermcgeown@cliftoningram.co.uk or Telephone: 0118 912 0278