At present Inheritance tax (IHT) is payable at a rate of 40% on the value of the estate over and above the tax-free allowance (known as the ‘nil-rate band’) of £325,000 per person.  Married couples and Registered Civil Partners can pass the any of the unused allowance onto each other, effectively resulting in a maximum allowance of £650,000 between them.

In recent years property prices have risen far more quickly than the nil-rate band.  As a result, the number of estates subject to IHT has been increasing rapidly.  This is contrary to the aim of the current government that only the wealthiest estates should be subject to IHT.

In the 2015 Summer Budget, the Chancellor, George Osborne also announced a new transferrable main residence allowance.  This allowance will only apply when a main residence is passed on to a direct descendant, namely a child or grandchild and includes adopted children, foster children and step-children.  Other family members such as nieces and nephews, cohabitants, non-registered Civil Partners and friends would not qualify.

The definition of ‘main residence’ will generally be self-explanatory but a property which was never the residence of the deceased, such as a buy to let property would not qualify.

The allowance will initially be set at £100,000 from April 2017 and gradually increase to £175,000 by 2020/21.  This new main residence transferable nil-rate band is in addition to the existing nil-rate band.  In the same way that the current nil-rate band can be transferred to a surviving spouse or civil partner, any unused main residence transferrable nil-rate band can be transferred to a surviving spouse or civil partner.

It is therefore possible that an individual by 2020/2021 will have their own nil-rate band of £325,000 plus a main residence transferable nil-rate band of £175,000 together with a nil-rate band and main residence transferable nil-rate band inherited from their spouse, giving the much advertised total of £1 million.

The policy is retrospective so the additional allowance would be transferable even if one spouse had died before the policy came into effect.

However the existing nil-rate band remains the same level it was back in 2009 and will continue to be frozen through to 2020/21.  Individuals who own other valuable assets such as investments and savings etc will not benefit as the £175,000 extra allowance will only apply to heritable property.

There were concerns that the new proposals would discourage individuals from downsizing however there are measures in place which apply when someone ceases to own their main residence on or after 8 July 2015.   This may be of particular relevance if someone has sold their main residence to move into a nursing home.

This should serve as a timely reminder to make sure that your Wills remain relevant for your own personal circumstances and so that full advantage can be taken of the transferable nil-rate bands.

Should you wish further advice on Inheritance Tax planning, please contact Vivienne Bruce by email on This email address is being protected from spambots. You need JavaScript enabled to view it. or Forbes McLennan, or either of them by telephone on 01224 581581.