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What You Need To Know About Inheritance Tax Rates And Thresholds

What You Need To Know About Inheritance Tax Rates And Thresholds

Planning well and planning early can mean that your children and grandchildren can enjoy some of the benefits of their inheritance whilst you are still alive. Doing nothing can mean that the government will receive 40p in every pound over your allowances. Knowing your allowances and taking advantage of them to minimise your exposure to inheritance tax (IHT) helps you pass assets on to the next generation and not the Treasury.

What are the inheritance tax rates and thresholds?

The value of an estate includes all assets owned solely and jointly by the deceased. This includes investments and money held in ISAs. Everyone is entitled to an NRB (nil-rate band) of £325,000. Anything above that is subject to inheritance tax, which is normally 40%. If more than 10% of the net estate is left to charity, the rate of IHT payable on the estate can be reduced to 36%.

The position is different if you are not UK domiciled, please contact us if you would like more information.

How are assets assessed for IHT?

-    Assets passed to a spouse/civil partner are exempt.
-    IHT is first offset against any gifts (in excess of the £3,000 annual exemption) and transfers into trust made in the 7 years prior to death, with the remainder against the value of the estate.
-    Any NRB that is not used on the death of the first person to pass away in a married/civil partnership couple, is transferable to the survivor to set against the value of their estate.
-    If total gifts exceed the NRB then IHT will be charged on the excess value of the gift at 40%, payable by the recipient of the gift rather than the estate. After three years has passed the rate of IHT chargeable on gifts reduces by 8% each year.
-    If your main residence is passed to a direct descendent, ie children or grandchildren, an additional £175,000 residence nil-rate band (RNRB) will be applied.
-    However, for every £2 of the estate’s value over £2,000,000 you lose £1 of the RNRB. So, if your estate is valued at more than £2,350,000 you will not be entitled to any RNRB
-    For a married/civil partnership couple the unused RNRB is transferable to the survivor giving a potential RNRB of £350K on their death.

When is IHT payable?

IHT is payable by the executors of the estate by the end of the 6th month following the death. IHT due on assets such as property or unlisted shares can be paid in annual instalments over a 10-year period. Interest will however be charged by HMRC: the current rate is 3.25%.

Planning for IHT

Make sure you take the current value of your home into account as you may be surprised to realise you could have an inheritance tax issue. Make sure you take the proper steps now. We can help you minimise your inheritance tax exposure: please get in touch. You may also be interested in our blogs relating to Inheritance Tax getting your life in order