Will revisions required to benefit from new inheritance tax allowance

By Lenore Rice

Accountants are warning that thousands of people in Northern Ireland and the rest of the UK will need to update their Will in order to benefit from a new inheritance tax allowance.

A new 'family home allowance' will come into effect in 2020 and will apply to people who own a home from April 2017. It will essentially create an additional inheritance tax allowance of £175,000 per person, which added to the current allowance of £325,000, will result in a total of £500,000 - doubled to £1million for couples. However, the 2020 allowance will only apply if the property is "directly inherited" by direct descendants, including children, grandchildren, stepchildren, adopted and foster children.

The need for direct inheritance means that discretionary trusts will not qualify. Discretionary trusts became a popular way to pass on assets to children and other beneficiaries while minimising inheritance tax. Previously, couples could pass their assets to each other upon death without any inheritance tax liability, however the remaining spouse could only use their own tax-free allowance when passing on the combined estate upon their death. As such, beneficiaries often found themselves with a tax charge.

People turned to discretionary trusts to remove the first spouse's assets out of the estate for inheritance tax purposes on their death. Since October 2007 the unused tax allowance of a partner could be passed to a surviving spouse, thereby removing the need to use a discretionary trust. However, many pre-2007 Wills still include the trusts, and some people still use them to this day - particularly if they have children from a previous marriage and want to safeguard their inheritance.

Anyone who wants to benefit from the additional 2020 family home allowance will need to amend their Will to remove any discretionary trusts when it comes to the family home.

If you require legal advice in respect of writing a Will, updating a Will, or in respect of inheritance tax or trusts, contact Wilson Nesbitt solicitors in Belfast by calling 0800 840 9293.

To read more information about Will writing services click here.