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The Government's New Tax Promises - how does it affect you?

on Monday, 03 October 2016.

George Osborne's promise of a shiny new £1 million inheritance tax threshold at the Conservative Party Conference back in 2007 finally came to fruition in the Summer Budget of 2015.

However, the government's proposals are not quite as generous as the headline figure would have us believe, and the legislation has left many unanswered questions.

Here is our guide to the key inheritance tax changes:

  • £1 million equals the total inheritance tax (IHT) relief which the children of spouses or civil partners can claim at death.
  • £1 million equates to the existing individual's IHT allowance (currently of £325,000, or£650,000 per couple) plus the new residence nil rate band of up to £350,000 per couple.
  • The new residence nil rate band will enable individuals who leave their home to their children or stepchildren to claim up to an additional £175,000 free of inheritance tax.
  • If your total estate is worth more than £2 million, special rules apply which will limit your possible tax savings.
  • Importantly, those without children and those who do not leave their estate to children or stepchildren will not benefit from the new residence nil rate band.
  • The total relief available under the new residence nil rate band will be phased in over a period of four years from the 2017/18 tax year, when the first additional £100,000 will be available. This will increase to £175,000 per person by 2020/21.

Do you own property at home and away?

Another key development of 2015 was the introduction of new European regulations affecting those who own property abroad.

In recognition of the many people who live and work outside the country of their nationality, the new European Succession Regulation was introduced.

The general principle is to simplify those estates where two or more laws of succession previously applied, by establishing that just the law of succession governing the member state in which a person was ordinarily living at the time of their death, will apply. It is possible to opt for the law of your nationality to apply instead, if you wish.

Importantly, the UK has opted out of the European Succession Regulation. However, we are still affected and Britons with property in other EU states, for example a holiday home in France, still need to ensure that their Will makes their choice of law clear.

Despite its laudable goals, it will take time before the practical consequences of the European Succession Regulation become clear and in this most complex of areas, it remains vital to seek professional advice if you have assets in more than one country.

For specialist legal advice on inheritance tax, please contact Mary McCrorie on 0117 314 5368.

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