Not everyone pays Inheritance Tax. It’s only due if your estate, including any assets held in trust and gifts made within seven years of death, is valued over the Inheritance Tax threshold, currently £325,000 (also known as the nil rate band). The Inheritance Tax threshold has been frozen at this level since 2010.
One of the great things about having wealth is knowing that it can be passed on to others. Your wealth might encompass businesses, property and investments in the UK and abroad that require specialist considerations. We work closely with our clients in order to plan to minimise Inheritance Tax liabilities, which is often linked to the making of wills and setting up trusts.
There are a number of different wealth structures that could help reduce your family’s Inheritance Tax bill but unless you plan carefully, all your assets or your beneficiaries, could eventually become liable to Inheritance Tax.
Since October 2007, married couples and registered civil partners can effectively increase the threshold on their estate when the second partner dies - to as much as £650,000. Their executors or personal representatives must transfer the first spouse or civil partner’s unused Inheritance Tax threshold or nil rate band to the second spouse or civil partner when they die.
If you're worried that rising house prices might have pushed the value of your estate into exceeding the nil-rate band, then the new "residence nil-rateband" (RNRB) could be significant. Introduced in 2017, it can be claimed on top of the existing nil-rate band. It is £125,000 (2018/19) and will increase annually by £25,000 every April until 2020, when the £175,000 maximum is reached.
The RNRB is only available where a property that is (or was) used as the deceased's main residence is passed to a direct descendant. From 6 April 2021, the RNRB will then increase each tax year in line with CPI. The RNRB is also transferable between married couples and civil partners to the extent that it is not used on the first death. The RNRB is tapered by £1 for every £2 when a total estate is worth over £2 million.
Inheritance Tax applies to your entire worldwide estate, including your property, savings, car, furniture and personal effects. You also need to consider your investments, pensions and life insurance policies and ensure that life policies are held in an appropriate trust.
Planning ahead for when you die allows you to set out clearly who should get what from your estate. In order to protect your family and loved ones, it is essential to have the correct wealth structures in place after you’re gone. This is a complex area of financial planning, so to prevent unnecessary future Inheritance Tax payments you should always obtain professional financial advice based on your individual circumstances and needs.
Tax advice which contains no investment element is not regulated by the Financial Conduct Authority.