Passing wealth on to future generations of your family is a time-honoured practice in Britain.
However, if a person’s estate exceeds a certain value, an inheritance tax (IHT) bill is triggered. Many assets are considered part of an estate, and property is among them.
In the present tax year running from 2023 to 2024, inheritance tax is not owed on the first £325,000 of a person’s estate, with 40 per cent normally charged on an amount above this.
However, what is taxable is reduced when a person leaves their home to their direct descendants: their children or grandchildren, for example. The reason for this is that two different tax-free allowances exist.
The aforementioned £325,000 is considered the standard IHT allowance and still applies. However, since 2017, a further £175,000 worth of allowance is also accessible via the ‘residence nil-rate band’, which is also referred to by the term ‘main residence’ band.
An extra allowance, this tax-free £175,000 is received on top of the £325,000 IHT allowance when a main residence is passed onto children and grandchildren. This includes stepchildren and foster children, and those who are adopted.
As a result, inheritance tax may not be owed on the first £500,000 of a person’s estate, depending on who they opt to leave their home to.
Its’s worth noting, however, that the main residence allowance of £175,000 only applies when a person’s estate has a value of less than £2 million.
IHT tax bills can be complex to calculate, but our team at Hartey Wealth Management are experts in financial planning in Shropshire and Chester, and are always on-hand for advice. Call us today for assistance.
