UNDERSTANDING INHERITANCE TAX
If you are UK domiciled, IHT is applied to your entire estate. There is an allowance, known as the nil-rate band, which currently sits at £325,000. If your estate is valued at less than this allowance IHT will not apply. Married couples, or those in civil partnerships, can enjoy their own allowance, creating a joint nil-rate band of £650,000. There are also a number of other exemptions that can be used to help reduce Inheritance Tax. These include a range of allowances including:
- Up to ₤3,000 per year to individuals
- Up to ₤250 to as many people as you like
- Up to £5,000 to your son or daughter if they are getting married
- Cash payments to family members which act as maintenance
- Regular recorded financial amounts from your spare income
- Amounts between spouses or civil partners (providing that both of you share the same domicile or the person receiving is UK domiciled)
- Legacies to charity when you pass away
- Outright gifts of cash or assets to anyone else, provided you survive the gift for a further seven years and don’t retain any benefit of the gift at the end
NEW RESIDENCE ALLOWANCE
The Residence Nil-Rate Band is an additional allowance, introduced in 2017, which generally applies if you leave your main residence to your direct descendants. As well as your children or grandchildren, your ‘direct descendants’ can include any stepchildren, adopted children and foster children.
The additional Residence Nil-Rate Band is supported by the value of a main residence that is passed to your direct lineal descendants. The additional allowance of £175,000 can also be applied to help reduce IHT.
The property you leave must have been one you have lived in – if you have only ever had a portfolio of properties that have been let, they won’t qualify.
As ever there are some limitations. For example, if your estate is worth more than £2million (even if your property is worth much less than this), the allowance will be reduced by £1 for every £2 that the estate is valued over £2million.
The Residence Nil-Rate Band can also be transferred between spouses provided the relevant conditions are met, which can create a significant opportunity to reduce IHT bills.
HELP WITH YOUR INHERITANCE TAX PLANNING
Putting an IHT plan in place is imperative. Careful planning and timely gifts to family members and charities can help preserve your wealth and ensure that your assets are left to those who you’ve chosen as your beneficiaries.
To achieve the best outcome IHT planning should form part of your overall investment and retirement strategy. Our team of qualified experts can help you maximise the value of your estate in the most tax-efficient manner.
Please contact your nearest office today to find out how we can help.
