Following a number of recent articles in National Newspapers further light has been shone upon the anticipated inheritance boom that is heading the way of today’s younger generation. The Resolution Foundation said that it is expected that inheritances would more than double over the next two decades. It expects the peak year to be 2035, as the baby boomer generation – who have benefited most from the huge increase in house prices – progress through old age.
As a consequence of the increase in inheritances, the leading think tank also commented that it is expected that the Treasury is also likely to benefit as Inheritance Tax receipts rise. The Office for Budget Responsibility has predicted that Inheritance Tax will raise £5.3billion in the 2017/18 tax year, which will eventually increase to £6.5billion by 2022/23. This news only serves to highlight the importance of reviewing your own affairs to ensure that you have implemented an effective strategy when it comes to your own Estate Planning.
For deaths after the 6th April 2017 an additional Inheritance Tax free allowance will come into force, meaning that if certain criteria are met, it is now possible for an individual to pass on assets worth up to £425,000 Inheritance Tax free, with married couples and civil partnerships able to leave a combined £850,000.
This will also increase over the next three years and after the 6th April 2020 the planned allowance increases will mean that married couples can leave £1 million worth of assets Inheritance Tax free. Previously, the Inheritance Tax free allowances were a maximum of £325,000 for an individual and £650,000 for a married couple.
The additional allowance known as the ‘Residence Nil Rate Band’ will allow an additional £100,000 of Inheritance Tax exemption to be applied to an estate where a person’s residence is passed on to lineal descendants, however this is not straightforward. Unfortunately, the rules regarding what qualifies as a residence and who counts as a direct descendant are intricate. In addition, there are a number of other conditions that must be adhered to for the allowance to apply including complex provisions for those who downsize and did own a residence that would have qualified, but do not own either a residence or a residence worth the value of the exemption at the time of their death. The allowance is also transferrable between spouses, so that a surviving spouse can use both allowances, if the first allowance was unused
In addition to the Inheritance Tax free allowances that may be available, there are also often a number of valuable tax exemptions and reliefs available. These can be used to great effect when conducting Estate planning in order to help mitigate your Inheritance Tax liability.
The expert lawyers in the Wills, Tax and Probate team at Enoch Evans LLP have a wealth of experience in providing bespoke advice upon how best to reduce the Inheritance Tax that will be due on death. The Department is accredited by the Law Society for membership of its elite Wills and Inheritance Quality Scheme (‘WIQS’).
If you wish to discuss the above in more detail, the making of a Will or undertake a review of your affairs, please do not hesitate to get in touch with a member of our Wills, Tax and Probate team who will be more than happy to assist you.