Summer Budget 2015 - The family home IHT allowance (nil rate band extension)

An additional inheritance allowance is being introduced atop the current nil rate band of £325,000. Once fully phased in, this extension of the nil rate band will allow couples to pass on their family home tax free for up to a value of £1,000,000.

This additional allowance is also transferable to the surviving spouse.

The home inheritance allowance will start at £100,000 for 2017/18.

The allowance will then increase to:

  • £125,000 in 2018/19,
  • £150,000 in 2019/20,
  • £175,000 in 2020/21.

 

How to set a property as being eligible for the family home allowance

Main residences -- properties set with a Type of Main Residence -- are defaulted as being eligible for the family home IHT allowance.

 

The setting that enables the allowance is found on the Property/Assets screen under Advanced Settings > Taxation panel. 

 

 

Tick "Qualifies for main residence IHT exemption" if the family home allowance is applied to be applied to the property. 

 

Where to view the family home allowance

The family home allowance can be viewed on the Legacy > Overview screen, as it comes into play when calculating one's taxable estate and potential IHT. 

 

Select the Plan Legacy tab at the top of the screen. 

 

In plans for couples, the allowance is normally applied upon second death. Death must occur on or after 2017, which is when the allowance first goes into effect, and the plan must contain a property tagged as being eligible for the main residence allowance. 

 

The amount of the home's value at time of death that is exempt from IHT will be noted, as shown below, in the right column of the overview under [Potentially] Taxable Distributions

 

Future escalation of the family home allowance

In Voyant, both the nil rate band and the family home allowance that extends it are set to government mandated maximums until 2021 (the 2021/22 tax year). Moving beyond 2021, both may be escalated based on the software’s Nil Rate Escalation setting.

This assumption is found on the Preferences screen (click the cog icon, top-left). Expand the Default Inflation/Growth Rates panel. 

 

The setting in Plan Preferences, to the right side of the screen, will apply to the client case that you are presently viewing. This assumption can also be edited on a per scenario basis within the client case. 

The escalation setting in System Preferences, to the left side of the screen, is used only as an initial default in newly created client cases.

 

Tapering family home allowance on estates over £2 million

The family home allowance is subject to a taper if the estate is valued at more than £2,000,000 with £1 of the allowance being lost for every £2 of estate value over £2,000,000.

This taper is based on the full value of the estate before reliefs, such as business property relief and agricultural property relief.

Note:  Although Voyant is aware of these tapering rules, they will not be implemented in our initial 2016 Summer Budget release in September. These rules will however be added in a later update. 

For now, it is an either/or option. If a family home is ineligible for the exemption due to the tapering of relief, you may simply untick the "Qualifies for main residence IHT exemption" setting. The full exemption will otherwise be applied.

First Published 02 September 2015, Release 4.0.19

 

Related topics

Release Notes - Version 4.0.19 - 02 September 2015