Good news – the inheritance tax allowance has increased to £900,000!
Posted on April 11th 2018
As of 6th April, married couples and civil partners will be able to pass on up to £900,000 completely free of inheritance tax.
What do the changes mean?
Before the changes, a single person could pass up to £325,000 to their heirs without paying inheritance tax. Inheritance tax is a tax on the estate (the property, money and possessions) of someone who’s died.
Once you exceed the inheritance tax allowance, a tax of 40% is applied on everything above this amount. Any allowance you do not use before you die can be transferred to your spouse/civil partner, along with your assets. Before the changes, this meant that a married couple could pass £650,000 of inheritance on, tax-free.
In 2017, an additional inheritance tax allowance, called the ‘residence nil-rate,’ was introduced. You can learn about this fully here .
This tax allowance applies when your estate contains a property you intend to pass on. When it was implemented in 2017, it gave each person an additional £100,000 to pass on tax-free. To reflect the rising value of property in the UK, the allowance is due to rise by £25,000 every year until 2020/21.
That means that this year the residence nil-rate is £125,000 per person. Added to the regular inheritance tax allowance of £325,000, you will now be able to pass on £450,000 to your direct descendants in the 2018/19 tax year. If you are a married couple, this means you will be able to pass on up to £900,000, without paying inheritance tax.
Can you pass your property on to anyone tax-free?
For the additional inheritance tax allowance to apply, your property (or the majority of it) must be passed on to ‘direct descendants.’ This includes:
- Children and their spouses/civil partners
- Grandchildren and their spouses/civil partners
- Great-grandchildren and their spouses/civil partners
- Adopted children
- Foster children
- Children who were under the guardianship of the people passing on their estate.
To learn more:
This article by Which? discusses the changes to inheritance tax. It also discusses how other changes this year may mean that you can leave even more of your estate, tax-free, to your descendants.
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