IHT (Inheritance Tax) changes afoot
Inheritance Tax (IHT) is a tax on an estate (meaning the property, money and possessions) of a person who has died. A new rule is currently being considered by the House of Lords which could result in large knock-on effects for the public.
The standard IHT rate is charged at 40 per cent, however it is only charged on the part of the estate that is above a specific threshold. The standard threshold is currently £325,000 (we call this the Nil Rate Band – NRB), however, there are certain instances where money above this threshold is not subject to the tax.
For instance, if a person dies and leaves everything above the NRB threshold to their spouse, civil partner, a charity, or a community amateur sports club, then there should not be any IHT to pay.
Additionally, if a person gives their home to their children (which includes adopted, foster, or stepchildren) or grandchildren, then the threshold can potentially increase to £475,000. This is a complex area of the law and we would always advise taking specialist legal advice on it.
Furthermore, if a person is married or in a civil partnership and their estate is worth less than the NRB, any unused NRB can be added to the partner’s threshold when the other person dies.
This means that the surviving partner’s NRB can currently be as much as £950,000. This will rise to £1 million in April 2020.
However, if the new rule which is being considered by the House of Lords becomes law, then cohabiting siblings could find themselves free of IHT on property left to each other.
Conservative peer, Lord Lexden has introduced a new bill to address what he calls the “worst injustice” of cohabiting siblings facing larger IHT bills.
The bill states that siblings must have lived together for at least seven years, and the surviving sibling must be over the age of 30.
It comes after the high profile case of Catherine and Virginia Utley, whose case to be considered exempt from IHT on assets left to each other was rejected.
The siblings have lived together for more than 30 years. They have said that under current rules, when one of them dies, the other would be forced to sell the family home in Clapham, London, due to a huge £140,000 IHT bill.
Sibling refers to brothers and sisters, as well as half brothers and sisters and the bill, if made law, would apply to England, Wales, Scotland and Northern Ireland. The bill would need to go through a series of readings in both the House of Lords and the House of Commons before it could become law. However, despite the proposal for the change in rules, IHT experts say the move does not go far enough to protect the many households affected by growing IHT bills.
Unfortunately the law still does not go far enough to protect cohabiting couples and platonic cohabiting friends. Many professionals in the area are lobbying to try and ensure the situation is made fair across the board but it is feared that not enough change will be made.
Ann-Marie Matthews is a solicitor in the private client team at Barker Gotelee, Ipswich Solicitors.