You don’t need to own a £1M home to benefit from IHT breaks

Recap

In April we outlined proposed rules for IHT breaks for £1M homes. Back then it was thought that couples would need to own a home worth £1M to fully benefit from the reliefs.

We made the point that this would incentivise people to trade up their houses at just the time when they may well be considering downsizing.

George Osborne seems to have taken the contents of this Tax Bite on board (!) and he has come up with more sensible proposals that he announced in the recent budget.

Key Points of New Rules

  1. A couple can avoid IHT (over and above the existing £325,000 nil rate band) on a further £350,000 of wealth if they own a property worth at least £350,000.
  2. This will be phased in and will only fully apply for deaths after 5 April 2020.
  3. The relief will be eroded for estates over £2M at a rate of £1 for every £2 over. Therefore these rules are irrelevant for estates valued at £2.35M and over.
  4. The rules are quite complex and require descendants to inherit the property in question.

Planning Point

This will mean that there will ultimately be an ‘IHT hotspot’ for estates worth between £2M and £2.35M. Currently gifts at this level will save IHT at a marginal rate of 40% (subject to 7 year gift rule), however after 5 April 2020 this will be at 60% as any gifts will (all other things being equal) ‘undo’ the erosion of the relief.

 

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