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Inheritance Tax

The principles of calculating Inheritance Tax are quite straightforward (the details are slightly simplified here) - the problems can come with doing it in practice.

For what is left, up to the IHT-free limit (the Nil Rate Band) is taxed at 0% but the excess is taxed at 40%. Today the NRB is £325,000, so leaving £326,000 produces an IHT bill of £400. By careful planning you might be able to reduce or even eliminate their family’s future tax bill. However, you need to look at this carefully. Improvement to the IHT rules brought in the ‘Transferable NRB’. It means that married couples can leave everything to each other yet still exploit both NRBs when the family eventually inherit.

 

In the past the NRB limit has been increased in virtually each year. However, from the Budget of March 2010 it has been frozen - currently at least until 2025/26. On the other hand, from April 2017 there has been an additional allowance, known as the Residence Nil Rate Band. It applies if your Will passes your main residence to your descendants or specified other people close to you. From 2021 that can add a further £175,000 of inheritance tax allowance. However the rules for the RNRB are very complicated and have some unexpected catches, so you will need advice to understand how it might apply.

Inheritance Tax

 

a tax on your family at 40%.