Financial services company NFU Mutual has reported that there could be a rise to almost 500,000 millionaires in the UK this year based on HMRC data. This growth in wealth will push more people into the Inheritance Tax bracket whilst the Nil Rate Band for tax remains frozen at £325,000 until 2021. As a result, Inheritance Tax planning is becoming a major issue for more and more people in this country.

Tax payers will benefit (so long as they are married) from the new Inheritance Tax Free Allowance for family homes, being introduced from April 2017. This will amount to £100,000 per tax payer (i.e. £200,000 for a couple) rising to £175,000 in 2020, on top of the Nil Rate Band of £325,000.

This new allowance is, of course, the much lauded increase of Inheritance Tax allowance to £1,000,000 promised by the former Prime Minster David Cameron but it may not be as generous as it looks to some. First, the allowance is withdrawn by £1 for every £2 by which the combined value of a couple's estate exceeds £2,000,000. Accordingly, if your estate exceeds £2,700,000 the enhanced Nil Rate Band allowance will not be available at all and your combined husband and wife allowance will be reduced to £650,000, although this can be mitigated by careful planning.

Second, the allowance is only available on legacies to direct lineal descendants, meaning childless couples will not have the benefit of an increased allowance.

Third, individuals who are making use of Trusts to protect assets for the benefit of their children need to think very carefully, as unless the Trusts are skilfully drawn, Wills leaving assets in Trust may also cause tax payers to lose the enhanced Nil Rate Band. Of course this is an extremely complex area of new law and it is very easy unknowingly to lose the benefit of what at first appears to be a very generous allowance.

To ensure you keep up with changes in the law and know how to protect your wealth for future generations, reserve your place at our free Wealth Management Event on 2 March 2017 by contacting Melissa Baxter on t: 0118 912 0210 or e: melissabaxter@cliftoningram.co.uk.

Clifton Ingram's events are usually oversubscribed so please contact us early to avoid disappointment.

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