Passing on the family home to the kids is now less of a worry

Residents in Scotland may be lifted by recent changes to inheritance tax (IHT) rules in this year’s Pre-Budget Report (PBR).

The Chancellor’s changes to next year's Finance Bill allow a claim to be made for the transfer of any unused IHT nil-rate band allowance to go to a surviving spouse or civil partner, equating to £600,000, the combined total of the current £300,000 per person. This is now without the need for a discretionary will trust.

Take the scenario of a married couple residing in their family home, who wish to pass this onto their children. In most cases, on the death of the first spouse, all their assets, including the family home, will pass to the surviving spouse, which will happen without a tax charge, but that spouse will not have made use of their nil-rate band.

Under the new legislation the nil-rate band allowance of the first spouse will be passed on to the surviving spouse. For example, if the value of the family home at the time of the second spouse’s death is £600,000, then under the new proposals there will be no IHT charge on this asset. This can be compared to the current rules under which only one nil-rate band would be available giving rise to IHT of £120,000.

This is a welcome change for many parents whose main asset is often the family home and who worry about the significant IHT payable by their children on their death. In these circumstances, under the present rules, it is difficult for the first spouse to take advantage of their nil-rate band.

The proposed changes immediately double the value of assets that can be passed onto the next generation without an IHT liability and wills can now be tax efficient without necessarily being complicated.

The main winners from IHT changes in this year's PBR announcement are the parents who don't have to worry about the burden that they are passing to the children and the children who don't have to pay it!

The new IHT rules come into effect immediately, rising to a combined allowance of £700,000 coming into effect in 2010.

Contact details
Email: Valerie Smart
Tel: +44 (0)131 260 4497