We can help you to work out whether Inheritance Tax (IHT) is likely to be due on your estate when you die. Inheritance Tax is paid on anything over the threshold which has been set at £325,000 for many years. If you are married or in a civil partnership it is unlikely that IHT will be due on first death. Often what happens is that everything passes to the surviving spouse and IHT only becomes an issue when the spouse dies as well. The unused IHT allowance of the first to die can then be used against the estate of the second to die. This means that a couple can currently leave £650,000 tax free.
There is also an additional IHT allowance that may be due – it is called Residence Nil Rate Band and as long as you own a property which you are ultimately leaving to direct descendants (including step-children) and your estate is below a certain limit, you can leave an additional £175,000 (from 6th April 2020) tax free. Bringing the total tax free allowance for a single person to £500,000 and for a couple to £1 million.
We can offer tips regarding ways you can limit the IHT that will be due on your estate, and we can recommend a Financial Advisor if more complicated IHT planning is required.
If your estate (everything you own) is likely to be less than the amounts stated above you can make gifts of whatever sums you like, whenever you like. Many people don’t realise this and get confused with the ‘7 year rule’. This rule is only relevant if it seems that IHT will have to be paid on your estate. The rule basically means that if you give away large sums of money, the sums remain in your estate for 3 years and after that they are increasingly treated as belonging to the person you’ve gifted the sum to, until 7 years have passed and then they gift will no longer form part of your estate at all.
If it does seem that IHT will have to be paid on your estate, there are smaller gifts that can be made to certain people/in certain circumstances which will immediately be taken out of your estate. We’ve compiled a handy factsheet detailing gifts – it covers smaller gifts and also the ‘7 year rule’ and shows the decreasing percentages of ownership when larger gifts are made.
For a no obligation chat about inheritance tax please call us on 01438 746977
Alternatively, please fill out the form below to find out how we can help: