Action towards a new living wage caught the headlines as Chancellor George Osborne delivered his first Budget statement under a Tory majority, alongside good news for families who want to pass on their property wealth to future generations.
For homeowners, as widely reported in advance, the Chancellor gave a much-hoped for hike to the threshold at which people pay inheritance tax on the family home. By 2017, a married couple or civil partners will have a combined allowance of £1 million, up from the current level of £650,000, with a resulting saving of inheritance tax of £140,000 at the maximum level. A single person will have a £500,000 allowance, up from £325,000, giving a tax saving of up to £70,000. People will also be allowed to sell a larger house, but retain the relief from inheritance tax, in a move designed to encourage down-sizing and free up larger properties by older owners.
Inheritance tax will continue to be charged at a rate of 40% on the value of an estate above the tax-free threshold and the additional allowance is for family homes. It will be introduced at £100,000 in 2017-18, rising by £25,000 in each subsequent year, to reach the £175,000 level in 2020. High values estates will not qualify for the additional relief, which will be tapered away for estate values at between £2m and £2.35m
The news on inheritance tax was not so good for non-domiciled residents, with the announcement that it will be payable on all residential property they own from April 2017, regardless of their tax residency and even when the property is through an offshore company or partnership.
Said Kalpa Prajapati, private client expert of Grant Saw Solicitors : “A review of inheritance tax thresholds has been long awaited and this is good news for middle England who have seen the values of their family homes rise considerably over recent years. They will now have more to pass on to their children.”
She added: “As this is going to be a gradual change, those with estates in excess of the current £325,000 per person threshold should still be working with their advisors to see how best to manage and mitigate values. And for those with estates over £2m, the agenda of lifetime gifts and other means continues to be worthy of consideration.”
There was good news also for people who rent out a room in their home. Tax is not currently due on the first £4250 of rental income, where it has stood for 18 years, but this will increase to a tax free allowance of £7500 from next year.
But there will be a cut in tax relief on mortgage interest for landlords. Currently, property-owning landlords can offset mortgage interest payments against the top levels of tax they pay, meaning the wealthier landlord can claim tax relief at 45%. From April 2017, the tax relief will be gradually restricted over four years to relief solely at the basic rate tax rate, which is currently 20%. In announcing this move, the Chancellor said the current system gave landlords an “unfair advantage” over homeowners. It is also seen as a response to the Bank of England’s warning last week that the high levels of buy to let were inflating house prices and reducing affordability for first time buyers.
This is not legal advice; it is intended to provide information of general interest about current legal issues.