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Couples able to pass on £950,000 tax-free as inheritance threshold to rise

Couples able to pass on £950,000 tax-free as inheritance threshold to rise

Parents and grandparents who are passing on their home will be able to leave up to £950,000 tax-free from Saturday 6 April, when the inheritance tax threshold is set to rise.

One part of the threshold, the 'residence nil-rate band', an extra allowance for those passing on their main homes to direct descendants after they die, is being raised from £125,000 to £150,000 for the new tax year, 2019/20.

This brings the total amount that an individual can leave tax-free to £475,000, or £950,000 for married couples and civil partners.

See our Inheritance Tax guide for more help planning the tax on your estate.

What is inheritance tax? 

When you die, your assets – including cash, property, investments and possessions – are added up to calculate the value of your estate. 

Most can pass on a certain amount tax-free, but your estate will owe tax at 40% of anything above the tax threshold. 

The tax-free portion of your estate is made up of two parts: 

  • The basic allowance is the value of assets you can leave tax-free. This is currently £325,000 for estates worth less than £2 million, and is not set to rise for the new tax year. 
     
  • The 'residence nil-rate band' is added to the basic allowance for those leaving their main home to a direct descendant (classed as children, step-children or grandchildren).

    This is rising from £125,000 to £150,000 for the new tax year, bringing the total an individual can leave tax-free from £450,000 to £475,000. 

If you're married or in a civil partnership, anything you leave to your spouse is exempt from inheritance tax (even if it's above the threshold). 

And any unused inheritance tax allowance, including the residence allowance, will be passed on to your spouse as well. 

This means a couple will be able to leave up to £950,000 in assets tax-free if they leave their main home to their children or grandchildren in 2019/20, up from £900,000 currently.

How are inheritance tax allowances changing?

The residence portion of the inheritance tax allowance will continue to rise. 

By 2020/21, the total allowance for those leaving their main residence to a direct descendant will increase to £500,000 for an individual, or £1 million for a couple.

Here's how the allowances are changing:

Inheritance tax allowances 2018/19 to 2020/21

TABLE_CELL_STYLE 2018/19 2019/20 2020/21
Basic allowance £325,000 (£650,000) £325,000 (£650,000) £325,000 (£650,000)
Residence nil-rate band (1) £125,000 (£250,000) £150,000 (£300,000) £175,000 (£350,000)
Total inheritance tax allowance (1) £450,000 (£900,000) £475,000 (£950,000) £500,000 (£1 million)

Total thresholds for married couples and civil partners shown in brackets. (1) For those leaving their main residence to a direct descendant.