24th July 2015 at 10:23am
To downsize or not to downsize? It’s a question many of us will ask ourselves in our later years and for varying reasons.
We’ve maybe become empty nesters and are left rattling around in a home too big for our needs or we may just see it as a chance to release some well needed funds.
The financial decision
The summer budget saw a new inheritance tax allowance of up to £1m. Married couples or civil partners with children or grandchildren in particular will be the main winners here. This means that many will come out of the IHT bracket when passing on a family home, and this may play a part in whether downsizing is something they want to do, if it’s a decision based on finances.
The new allowance is phased in from 2017 and relies on property being passed to direct descendants, but not nieces or nephews for example. The full £1m allowance will only apply to married couples or civil partners by 2020 if property is passed on to their children or grandchildren and the estate is below £2m.
Watch this space as more details are expected to cover the situation where someone downsizes from the family home so that cash rather than a house is passed on. It’s not a simple inheritance tax allowance and careful planning will be needed to check whether Wills need updated to take these changes into account.
Whatever your reason for downsizing it’s a big decision and one never to be taken lightly. It’s a life changing event which needs energy and a determination to de-clutter with a once-in-a-lifetime tidy-out. The inheritance tax rules might be about to change to support how you pass on your family home, or where you sell and pass on other assets to your children or grandchildren – we’ll cover this topic again once the new rules are finalised.
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This blog and any responses to comments are not financial or tax advice. This blog assumes you and your spouse/civil partner are domiciled in the UK for inheritance tax purposes. You should take expert legal advice before making gifts, to understand the inheritance tax consequences. Tax and legislation can change in the future.