Legal experts are warning the over 55s to watch out for tax traps that could ruin their plans to leave their homes to loved ones.
From April, a new family home allowance lets married couples pass homes worth up to £350,000 to direct descendants without paying inheritance tax on their value.
But around 1.7 million over 55s could inadvertently end up paying more than £140,000 in unnecessary inheritance tax because they have failed to rewrite their wills in line with the new rules.
Research by financial firm LV= reveals that one in 10 homes are left to brothers and sisters rather than children or grandchildren – which excludes the property from the family home allowance.
Over 55s at risk
Inheritance tax is paid at 40% on the family home if an estate is worth more than £650,000, making the bill a maximum £140,000 for a couple or £70,000 for an individual.
The firm also explained that thousands of over 55s are also unaware that the allowance applies to cash released from downsizing or selling a home to pay for care in retirement.
The family home allowance will be phased in over several years, starting with a £100,000 limit from April 2017 and increasing by £25,000 a year until April 2020.
The survey found that 72% of over 55s did not know about the tax change, half of those that were aware did not realise the allowance applied to cash freed by a sale.
Unmarried partners need a will
“This increased inheritance tax allowance is a boost to those who’ve seen their homes rise in value and want to be able to pass on this wealth without sharp tax charges, but it’s crucial that they don’t fall prey to the sibling trap. Getting the right legal advice and amending your will could take a few hours, but with potential to save a lot of money it’s time well spent,” said Martin Milliner, head of legal services at LV=.
The research also found that few unmarried partners who want to pass their homes and wealth to each other have wills.
Inheritance rules would see their wealth pass to their children who have no obligation to provide anything to their parent’s partner.