Summer Budget 2015: IHT family home exemption welcome but it won’t take full effect until 2020/21, says KPMG

Summer Budget 2015: IHT family home exemption welcome

Jo Bateson, private client tax partner at KPMG, comments on details announced in the Summer Budget on the Conservative manifesto pledge.

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Commenting on details announced in the Summer Budget on the Conservative manifesto pledge to allow family homes up to £1m to pass on to ‘direct descendants’. Jo Bateson, private client tax partner at KPMG said:

“This move on IHT was expected and is welcome. However it was a bit of a surprise to see that it is being phased in such that it won’t be implemented in full until 2020 and also that only direct descendants of married couples or those in civil partnerships with family homes will benefit. The basic, conventional ‘nil rate band’ of £325k has been frozen until 2021.”

The detail published today provides more clarity in particular that the £1m will be phased in over the next 4 years which is illustrated in the table below. The relief is available for those who downsize or cease to own a home from today's date provided that it is passed down to direct descendants (broadly children and grandchildren).

Year Nil Rate Band Main Residence Nil Rate Band Total Per Couple – for family house
2015/16 £325k - £325k £650K
2016/17 £325k - £325k £650K
2017/18 £325k £100k £425K £850K
2018/19 £325k £125k £450K £900K
2019/20 £325k £150k £475K £950K
2020/21 £325k £175k £500K £1M


Jo Bateson continued: “For direct descendants of couples with large family homes, today’s announcement represents a large saving in IHT.  As an example, looking ahead, if a surviving spouse dies with a property worth £1.5m in 2017 their IHT bill falls from £260k (which is what it would have been prior to today's Budget) to £180k (a saving of £80k). If the same events take place in 2020 when the changes are fully implemented, this IHT bill falls to £120k (a saving of £140k on the same scenario before the changes took effect).

“However, for those whose estates do not include residential property, for example those in rented accommodation, smaller properties or with assets other than property (jewellery, art, savings etc), this relief does not appear to be available although they may be able to benefit from the downsizing relief depending on how this is worded. And children of unmarried parents or heirs who are not children won’t benefit. So for example: nieces and nephews would not be able to inherit a house from a wealthy aunt or uncle and neither would a biological child of unmarried parents qualify but a step-child with a married parent would be eligible.

“As expected, this relief is capped for the wealthy with the relief withdrawn for properties in excess of £2m. It is fully withdrawn for properties in excess of £2.35m (from 2020 when the relief is fully introduced) and personal representatives can nominate a property where more than one qualify.”


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About KPMG

KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff.  The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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