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New Family Home Allowance

Although more people will move out of the Inheritance Tax bracket by 2020, executors will face complex IHT calculations over the next few years

In the June 2015 Budget, George Osborne confirmed that he would implement his pre-election promise to increase the Inheritance Tax property allowance known as the  ‘Family Home Allowance’ from £650,000 per couple to £1,000,000 effective fully by 2020. Whilst this has been good news for many families who have seen a surge in property values for relatively modest homes in the South East, it does bring further complications to Inheritance Tax calculations over the next five years. The increase is graduated and the new family home allowance will not reach the £1,000,000 mark until 2020. Furthermore, it only applies when the main home is being left to direct descendants, children and grandchildren and it will not apply when a home is left to siblings or other relatives.

Inheritance Tax is often one of the most complex aspects of estate management that an executor faces. If an executor makes a mistake in their calculations they will end up paying any shortfalls in IHT from their own account and become personally liable for any fines imposed by HMRC.

The new ‘Family Home Allowance’ is designed to ensure that more parents can pass their homes to their children, or grandparents to their grandchildren.  The rise in property values has meant that more people have been forced to sell the family home in order to pay Inheritance Tax on parental estates. In the long-term this new allowance may mean that more executors will not have to make any Inheritance Tax contributions because the majority of joint estates will fall below £1,000,000. In the short term the new system is likely to further complicate Inheritance Tax issues, putting extra pressure on executors who face unlimited liability.

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