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Changes to Inheritance Tax rules are confirmed in July Budget
Last month’s Budget was described by many commentators as the most radical of modern times and among the many policies announced were a number of changes which will have major implications for estate planning.
The Chancellor of the Exchequer told the House of Commons that he will be increasing the Inheritance Tax (IHT) threshold.
From 2017 there will be a new £100,00 allowance on homes left to children or grandchildren and this will be increased to £175,000 in 2020. This comes on top of the existing £325,000 threshold and both allowances will be able to be transferred to a person’s spouse or partner. As things stand, therefore, from 2020 couples whose assets include homes will have a combined nil rate band of £1m (this relief will be tapered downwards for joint estates worth in excess of £2m).
Mr Osborne had long wanted to reform IHT, but the proposals had been blocked by the Liberal Democrats during the Coalition.
With the Conservatives now commanding an overall majority, the Chancellor had the freedom to raise the threshold.
“Inheritance Tax was designed to be paid by the very rich,” he told MPs. “Yet today there are more families pulled into the Inheritance Tax net than ever before – and the number is set to double over the next five years. It’s not fair and we will act.”
There was less welcome news for those with non-domicile tax status after Mr Osborne announced a far tougher set of rules.
Under the new regime, to take effect in two years’ time, wealthy foreigners who make Britain their permanent home will be forced to pay full tax on their foreign earnings.
In addition, Britons who currently qualify for the status because their father was born overseas will no longer be eligible for the tax break.
The changes are expected to raise around £1.5billion for the Treasury over the course of the next five years.
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