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George Osborne Plans To Help Tax Lawyers and Accountants

Posted: Friday, 4 January 2019 @ 13:43

It is well known that the inheritance tax-free threshold will be raised from £325,000 per person to £500,000 for homeowners passing their main residence to their direct descendants.

At the moment the legislation looks flawed.     

Recent criticism has come in from MP Andrew Tyrie, the Conservative Chairman of the Treasury Select Committee who has written to Chancellor George Osborne demanding that the changes are simplified and then implemented rapidly to give those planning their wills some certainty.

The danger is that people will not understand the changes and will be less likely to make a will. It is tough enough to get people thinking about doing a will without the government making it more difficult.

Some lawyers may be (over)cautious in giving advice. They may not understand it themselves.

Some specialist tax lawyers and accountants may be happy and can charge clients more.

Confusion results in a number of areas.

Compare to the current nil rate band(£325k) which everyone understands... 

Here is a flavour.....

Complication 1 - The legislation allows an owner to sell their house in order to downsize in old age, but keep some of the proceeds for their children. This tweak was designed to ensure the elderly do not stay in large homes that they do not want or need purely for tax reasons.

Complication 2 - the rules are not yet finalised and are only expected to apply to homes inherited after April 6, 2017, leaving those writing their wills now uncertain as to the tax status of their estate when they die.

Complication 3 - It will be phased in - From April 2017 the Government is introducing a new, additional tax-free allowance for people who own a home. This is called the “family home allowance”. It will eventually be worth an additional £175,000 per person. Added to the £325,000 allowance that everyone gets, this means a new allowance for property owners of £500,000 – or £1m for couples.

Complication 4  - Estates that are worth more than £2m will lose some or all of the family home allowance, which will be tapered at a rate of £1 for every £2 over the £2m threshold.

Complication 5 - The family home allowance and the taper threshold will increase in line with inflation as measured by the consumer prices index (CPI) from 2021-22. Need to know that.

Complication 6 - Be careful who your family is.To qualify for the family home allowance, the property must have been the main home at some point and must be left to one or more direct descendants. This includes children, stepchildren, adopted children and foster children, and grandchildren, but not other relatives such as a nieces and nephews.

Complication 7 - If a home is sold or downsized on or after July 8 2015, the family home allowance will still be available as long as assets of an equivalent value are passed to direct descendants.

Complication 8 - If one partner dies before April 2017 the survivor will be able to use both of their family home allowances when he or she dies. This is regardless of other factors such as whether the first spouse owned a share in the property or had already passed a share to children.

Complication 9 - The value of the house matters. The value of the home may be relevant but is relevant only if it is lower than the family home allowance. If a £300,000 property was left to children following the death of the second spouse in 2022, for example, after the full £175,000 allowance has taken effect, the family home allowance of £350,000 (2 x £175,000) would be reduced to £300,000. The balance of £50,000 cannot be offset against the other assets.

Complication 10 - If the house is owned in just one name you can qualify for the allowance if the deceased must have an “interest” in the property to qualify for the allowance, so it should be transferred into joint names (in any ratio – it doesn’t need to be equal) for both spouses to qualify.

I could go on but it gets even more complicated!