How to make the most of unused inheritance tax allowance
By Kirsten Hastings, 15 Aug 17
The UK tax office has recently updated its rules for transferring any unused portion of basic and additional IHT thresholds when the first person in a marriage or civil partnership dies.
If someone owned their own home or a share of one, their estate may be entitled to an additional threshold.
The extra amount for 2017/18 is up to £100,000. The maximum available amount will go up yearly.
Any additional threshold that is not used when someone dies can be transferred to their husband, wife or civil partner’s estate when they die.
This can also be done if the first of the couple died before 6 April 2017, even though the additional threshold was not available at that time.
The additional threshold and any transferred additional threshold is available if the surviving husband, wife or civil partner:
- leaves a home to their direct descendants; or,
- includes the home in their estate.
Qualifying criteria
The home that the surviving husband, wife or civil partner leaves to their direct descendants does not have to be the same home that they lived in with their partner to either qualify for the additional threshold or to transfer it.
The surviving husband, wife or civil partner does not have to have previously owned the home with their late partner, or inherited it from them.
It can be any home as long as the surviving spouse or civil partner lived in it at some stage before they died and the home is included in their estate.
If the surviving husband, wife or civil partner sold or gave away their home on or after 8 July 2015 and they leave other assets to their direct descendants when they die, the additional threshold may still be available under the downsizing rules.
Couples who are not married or in a civil partnership, or who have divorced, will still be able to benefit from the additional threshold individually if they leave a home to their direct descendants. But they won’t be able to transfer any unused additional threshold to each other.
Pre-April 2017
Where the first of the couple died before 6 April 2017 their estate wouldn’t have used any of the additional threshold as it wasn’t available.
So, 100% of the additional threshold will be available for transfer unless their estate was worth more than £2m and the additional threshold is tapered away.
It’s the unused percentage of the additional threshold that’s transferred, not the unused amount.
This makes sure that if the maximum amount of additional threshold increases over time, the survivor’s estate will benefit from the increase.
Click through to see how this is calculated…
Tags: IHT
