Inheritance Tax Allowance
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Inheritance tax kicks in when an inviduals estate, aka all their valuables added up - think: home, savings, investments, car, business ownership, .... is worth more than £325,000. Tax is charged at 40% on anything above this. BUT the tax-free threshold increases if you are leaving a home to your children or grandchildren, this is known as the Main Residence allowance.
Side note: If you are married you can leave all of your 'estate' to your spouse and it will not get taxed, plus your tax-free allowance will be transferred to them. Make sure you write a will for this to happen otherwise your money will be divided between different family members based on UK Gov fixed rules.
The Gov plan to increase the Main Residancy allowance each year until the inheritance tax-free threshold for an individual reaches £500,000 which will happen in 2020. Here's a breakdown of the tax-free thresholds and how they will change:
|No home in estate||£325,000||£325,000||£325,000|
|Home in estate being passed to children or grandchildren||£450,000||£475,000||£500,000|
|Max allowance if window(er) receives spouses allowance and home is being left to children or grandchildren.||£900,000||£950,000||£1,000,000|
Want to know more about inheritance tax? we have a guide for that