Published On: Sat, Mar 21st, 2020

Inheritance Tax threshold changes take place in April 2020 – new allowance explained | Personal Finance | Finance

The standard Inheritance Tax rate is 40 percent, and this is only payable above a certain threshold. Usually, there’s no Inheritance Tax to pay if the value of an estate is below the £325,000 threshold, or if a person leaves everything above this £325,000 threshold to their spouse, civil partner, a charity, or a community amateur sports club.

Additionally, an Inheritance Tax may be reduced if a person gives their property to their children or grandchildren.

Doing this can increase the threshold to £475,000.

However, April marks the end of the 2019 to 2020 tax year, with the tax year end falling on April 5, 2020.

This means that on April 6, 2020, the 2020 to 2021 tax year will begin, and this will mean some changes are set to come into effect.

READ MORE: Martin Lewis: Urgent credit card warning for people hit by coronavirus crisis

AJ Bell personal finance analyst Laura Suter has explained what the changes on April 6 means in terms of Inheritance Tax.

She said: “Next month Inheritance Tax benefits improve again, and everyone will be able to leave more money as part of their estate before they have to pay Inheritance Tax.

“The limit of how much you can leave before your estate pays the 40 percent tax has been increasing gradually since a new allowance was first introduced in April 2017, meaning anyone with residential property was given an extra Inheritance Tax-free allowance.

“It will go up one final time in April to £175,000 per person, on top of the existing £325,000 nil-rate band.”


So, what does this increase mean for estates subject to Inheritance Tax?

“This means that including the standard nil rate band, from April a couple can leave a property worth £1million entirely Inheritance Tax-free,” Ms Suter explained.

“As with all these things there are some tricky rules you have to stick to, so the property must be left to a child, grandchild, or step versions, and those with lots of money and assets won’t get the full amount, as anyone with an estate valued at more than £2million will lose the allowance by £1 for every £2 they are over this limit.”

It’s possible for couples to leave this amount IHT-free due to the rule which says that if a person is married or in a civil partnership and their estate is worth less than their threshold, any unused threshold can be added to their partner’s threshold when the person dies.

This means that the surviving partner’s threshold can reach as much as £950,000.

But, as Ms Suter explained, from April 6, this would be as much as £1million.

Earlier this month, The Chancellor of the Exchequer Rishi Sunak delivered the 2020 Budget in the House of Commons.

In this financial statement, which included focus on measures amid the coronavirus pandemic, changes to Inheritance Tax were not mentioned.

Commenting on the fact that Inheritance Tax changes were not mentioned in the 2020 Budget, James Painter, head of tax at Shaw Gibbs, accountants and business advisers, said: “There was a small outside chance that inheritance tax changes would be proposed in the Budget, unsurprisingly though, nothing followed through.

“We did, however, at the very least expect Rishi Sunak to confirm that inheritance tax changes would be considered in the future.

“We welcome the proposed revisions to IHT; it has long been the case that it is seen as a method of double-taxation given the tax payer has (in most cases) paid tax on their earnings throughout their lifetime so the additional 40 percent on death (for those above the nil rate band) does feel like a double-blow.”

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