Are you aware of the new IHT thresholds from the 6th April 2020? and are you making the most of the gifts you can make to family and friends to reduce your IHT liability? Would you like to know more about the new rates and what gifts you can make to family and friends to reduce the potential IHT liability on your estate?…
The IHT thresholds/Residence Nil Rate Band (RNRB) are changing from 6th April 2020. From that date the basic threshold remains at £325,000 per person, but the RNRB increases to £175,000 (It is currently £150,000). The RNRB only applies if you have property and are leaving it to direct descendants ie. your children (this includes adopted, foster or stepchildren) and grand-children or great grand-children. This brings the total exemption per person, if you qualify for RNRB, to £500,000.
If you are leaving everything to your partner and you are either married or in a civil partnership, then in most cases there will be no IHT to pay on first death. The surviving partner is then allowed to use both tax-free allowances, providing the first spouse to die did not use up their IHT allowance by giving away a large amount of money in their Will to other family and friends. This means that a couple can usually leave a total of £1million without any IHT needing to be paid.
To summarise: Here are some of the key points regarding Inheritance Tax –
- The basic threshold is £325,000 per person. If the total value of your estate, including property, is below that limit, IHT will not be due. Anything over the threshold is taxed at 40% in most cases.
- If you are leaving property to your direct descendants then, as explained above, there is an additional RNRB of £175,000 available.
- You can gift up to a total of £3,000 per annum in total without any implications for IHT. This can be to one person or a number of different people.
- You can gift larger amounts but would need to live for 7 years after making the gift for it to be entirely IHT free (it is treated as your asset in decreasing percentages as the years go on).
- You can give as many gifts of up to £250 each per year to your family and friends as you like. Although not to anyone who has already received a gift of your whole £3,000 exemption.
- Each tax year you can also give wedding or civil ceremony gifts of up to £1,000 per person. This increases to £2,500 for a grandchild or great-grandchild and £5,000 for a child.