What you need to know about Inheritance Tax

In the United Kingdom, Inheritance Tax (IHT) is a significant aspect of estate planning and financial management. Understanding the intricacies of IHT is crucial for individuals to ensure that their loved ones can inherit their assets without facing hefty tax burdens.

Thresholds and Rates

Each individual is entitled to a nil-rate band of £325,000.00, before their estate is subject to Inheritance Tax.

The current rate for Inheritance Tax is 40%.

Residence Nil-Rate Band

Individuals who pass on a residence to their direct descendants can claim a further allowance of £175,000.00 Residence Nil-Rate Band.

Spouses

There is no Inheritance Tax payable upon the first death of a married couple whereby the estate passes to the surviving spouse.

The estate is able to claim any unused Nil-Rate Band or Residence Nil-Rate Band of the spouse who died first and transfer this to the estate of the spouse on second death.

Charity Exemptions

If you leave up to 10% of your estate to charity, you can claim a reduction in the Inheritance Tax rate paid and pay a rate of 36% Inheritance Tax.

Lifetime Gifts

Gifts made during your lifetime may impact the Inheritance Tax payable by your estate. For a gift to be exempt from Inheritance Tax, you must survive for 7 years following the gift.

You do have an annual allowance of £3,000.00 for making gifts, and if unused, can carry over the previous years allowance to bring the total to £6,000.00.

Business Interests and Agricultural Property Relief

Business interests and agricultural property may be 100% or 50% exempt from Inheritance Tax.

Our Advice

We highly recommend you obtain professional legal advice to discuss your assets, and whether your estate will be subject to Inheritance Tax. Your legal advisor will then be able to advise you on the exemptions and reliefs available to you, and recommend steps you can take to minimise Inheritance Tax and protect your assets for your loved ones.