Inheritance Tax Becomes More Complicated With 'Property Only' Allowance

In his Summer 2015 Budget, Chancellor George Osborne has today (8th July 2015) announced changes to inheritance tax with the addition of a property allowance of £175,000 on homes passed down to children or grandchildren.

This is additional to the £325,000 threshold for the current nil-tax rate band which applies to all assets.

Gillian Coverley, head of the Wills, Trust and Probate team at Irwin Mitchell, said:

Expert Opinion

“While we don’t yet have the finer details, this is a significant change to Inheritance tax although the provisions do not start to take effect until the 17-18 tax year and won’t come fully into effect until 2020-2021. For deaths prior 6th April 2017 the existing rules apply. The rules also only apply if you leave the family home to your children or grandchildren and not to other relatives.

“As the new provisions only apply to the family home ( or an equivalent value if that was sold prior to death) this additional allowance looks quite complicated to calculate. It is not as simple as saying the nil rate band has been increased to £1 million as has been commonly reported

“By increasing the IHT thresholds with a ‘property only’ allowance it raises questions about what happens if house prices continue to rise and suggests that the general limit of £325k which applies to all assets and has been set for some time, is going to remain the same until at least 2021.” Gillian Coverley - National Head of Partnerships, Wills & Probate

Specialist will dispute lawyers at Irwin Mitchell also warned that the changes to the inheritance tax threshold may lead to an increase in the number of legal challenges being launched regarding estates.

Katie Winslow, a legal expert in Irwin Mitchell’s Will, Trust and Estate Disputes team, said: 

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