What is Inheritance Tax?
Inheritance tax or IHT as its widely known is payable on everything you have when you pass away.
‘In the UK it is tax levied on property and money acquired by gift or inheritance’ – Definitions from Oxford Languages
This includes all the following:
- Your home
- Any other property or land
- Jewellery, Art, Cars
This is normally charged at 40% of the value of your estate above the IHT Nil rate band which is currently £325,000 per person.
It should be noted married couples or couples in a civil partnership can combine their IHT thresholds, resulting in a joint threshold of £650,000.
In addition to the nil rate band, an extra allowance was introduced in April 2017. This is known as the Residence Nil Rate Band (RNRB). The RNRB for the current tax year is £175,000 per person. However, the RNRB can only be used for married couples with direct descendants.
This means a married couple can potentially pass on up to £1 millions without having to pay any IHT tax when the second death occurs.
If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren your threshold can increase to £500,000.
There are several planning techniques which can be utilised to mitigate any potential IHT to pay.
Written by Raffaelle Castaldo DipFA PETR, IFA at Beesure Ltd