If you own property in London or parts of south-east England, changes to the inheritance tax system that will take homes worth under £1m out of the Inland Revenue’s reach will have come as a source of relief.
When it comes to property values, what applies outside London shouldn’t necessarily apply inside the capital and it seems that the Chancellor George Osborne has finally cottoned on to this fact.
The media is often quoted as saying that there isn’t a housing crisis except in London, where there isn’t only a shortage of property but prices start at around £400,000, says Nick Holmes from Robert Holmes Estate agents in Wimbledon.
So, the news that all property under £1m will be taken out of the inheritance tax trap has come as a great relief to many. However, you may be wondering how these changes will be implemented.
The inheritance tax threshold has been frozen since 2009 at £325,000 per person, meaning that if you were a couple you could pass on an estate worth £650,000 without incurring the wrath of the taxman.
George Osborne has raised this allowance to £500,000 per person, with the changes kicking in gradually from 2017, until they finally come into full effect in 2020.
The government will also be adding a family home allowance, which will eventually be worth £175,000 per person or £350,000 for a married couple or civil partnership. These gradual changes will allow savings starting at £100,000 in 2017, £125,000 in 2018, £150,000 in 2019 and finally £175,000 in 2020.
The Conservatives first put forward this pledge back in 2007, but due to being forced to form a coalition government with the Liberal Democrats the plan had to be put on hold until a fully Conservative government was elected.
But it’s not all good news. For those who have estates worth over £2m this additional allowance will eventually be withdrawn. With the rate starting at 40%, it will mean that in years to come those with high-end properties will incur much more tax.
This could cause problems in this area of the property market. Much like the threat of the mansion tax, owners will either rush to get rid of their homes at a reduced rate or it could stagnate the market as buyers may stay on the lookout for cheaper properties.
For those who wish to downsize from a high-end property to a more moderately size home, the government is implementing an inheritance tax credit. This essentially allows individuals or couples to still gain from the family home allowance if they pass on the estate to direct descendants. The idea behind this is to free up larger properties owned by pensioners and allow larger, growing families to buy them.
So, on the whole the news is good, certainly for those living in London and south-east England. Many middle class families will be encouraged by the recent changes, safe in the knowledge that their children will not suffer at what can only be described as a difficult time for those looking to get onto the housing ladder. For those with high-end properties, you may wish to have a rethink when it comes to what is best for you and your family, and perhaps consult an expert for advice.
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