Inheritance tax (IHT) is the tax on the estate of someone who has died. The estate will include the value of all the property, personal possessions and money. There are strict rules on valuations and GA Solicitors can advise you at every step.
Inheritance tax charges
There is normally no tax to be paid if:
- The value of the estate is below the IHT threshold of £325,000
- Everything is left to a spouse or civil partner
- Everything is left to an exempt beneficiary, such as a charity
It is really important to check if assets have been given away in the seven years before death as this must also be included.
If the value of the estate is above the nil rate band (NRB) of £325,000; then the excess above this threshold will be taxed at 40%.
So for an estate worth £425,000; the IHT threshold is £325,000, the tax charged will be on £100,000 (£425,000 – £325,000). The tax would, therefore, be £40,000 (40% of £100,000).
The NRB is fixed at £325,000 until 2028.
The Residence Nil Rate Band (RNRB) has been introduced recently.
This allowance is on top of the NRB and relates only to your home. To be eligible you must gift your home in your will to your descendants.
Provided certain conditions are met, the RNRB gives an additional allowance to be used to reduce the IHT against a home. We can advise you on this.
The RNRB is currently £175,000.
The rules in relation to this are complex and GA Solicitors’ specialists can advise you as to how this allowance might be claimed. Read our full section about inheritance and tax planning.
If you have downsized or even sold your home, GA can help you and advise on how your allowance can still be claimed.
Managing your inheritance tax
If you believe that you or your estate will be liable for inheritance tax, it’s important to consider how you will manage the bill. Avoiding inheritance tax is a legally complex matter and it is usually not possible to avoid paying inheritance tax entirely. However, there are a number of ways that you can effectively manage your inheritance tax in order to limit the amount payable. These include:
- Seeking pension advice from a financial adviser to find out if you can pass on your pension free of inheritance tax.
- Making use of trusts to gift assets to loved ones in a tax-efficient manner.
- Ensuring that you have a valid and up-to-date will. A qualified practitioner can advise on the best structure should you wish to keep inheritance tax liabilities to a minimum.
- Understanding your allowances and the rules on gifting. Currently, estates of below £325,000 are part of the nil rate inheritance tax band and no inheritance tax will be payable on an estate below this value. However, you must be aware that any gifts made in the seven years before your death will count as part of the value of your estate.
Should you wish to further understand the most effective way to manage your estate and possible inheritance tax, you should seek advice from a professional.
The specialist inheritance tax team at GA Solicitors are experienced in providing clear legal advice about your inheritance tax obligations and options. Our solicitors can also work alongside your financial advisers to help you maximise the value of your assets and utilise suitable inheritance tax reliefs such as investments.