Once a tax only the minority worried about, Inheritance Tax will continue to catch unsuspecting clients after the Chancellor announced there would be no increase to its threshold.
The Government will levy tax on the value of a person's estate if it is worth more than the Nil Rate Band of £325,000, a figure that has remained the same since 2010 / 11.
Property price inflation has meant many people leave an estate worth more than that figure, with dependents paying 40% tax on anything over it.
There is an additional 'main residence' allowance ('Property Nil Rate Band' (PNRB)) which applies if a person's home is given to their children (including adopted, foster or stepchildren), surviving husband or wife, or grandchildren.
This is set at £175,000 (2024/2025) and is added to the IHT threshold providing a total allowance of £500,000 (2024/2025).
When a relative dies, if the 'main residence' allowance applies, families are required to pay tax on the amount in excess of the NRB (and PNRB if applicable) within six months. After that, they are charged interest at a rate of 7.75% (2024/2025).
Your estate could include more than you originally realise. It is often easy to dismiss IHT as something that may not affect you as your property may not be over, or much over, the IHT threshold.
However, with all your other assets, such as investments, life cover, bank accounts, as well as physical property such as cars, furniture and family heirlooms, many estates are considerably over the threshold without the individuals being aware of it.
However, there are ways to lessen the burden of property IHT.
For assets passed between spouses and civil partners, the Nil Rate Band allowance will pass along with the assets.
This gives a couple available allowances (Nil Rate Bands) of up to £650,000 (2024/2025), which increases to £1,000,000 (2024/2025) with the addition of the 'main residence' allowance detailed above.
Estate planning
Few of us like to think about dying, however the relevant legislation requires us to plan well in advance.
This means making the necessary provisions now. There are many tax opportunities available and the earlier arrangements are made, the greater the chance of taking full advantage of our complicated tax system.
It is important when planning to transfer an estate that adequate provision is made and getting the right balance requires considerable skill and foresight - along with a detailed knowledge of the current tax regime.
Your contact at RNS can provide a discreet comprehensive estate planning service that includes:
- help with planning and reviewing a will;
- making full use of exemptions and lower tax rates on lifetime transfers;
- optimising lifetime transfers between family members;
- transferring agricultural or business property;
- transferring assets into trust; and
- arranging adequate life assurance to cover potential inheritance tax liabilities.
We also have expertise in dealing with trusts; a relatively easy and very tax efficient way to set aside assets for future beneficiaries outside the Inheritance Tax net.