Inheritance Tax (IHT) Planning

Inheritance Tax or “Death Duties”, are payable on your estate when you die. Your estate is everything you own, your house, your car, even that expensive tea set your Great Aunt gave you.

Each person is allowed to leave up to their “Nil Rate Band” (NRB) to whomever they wish before Inheritance Tax is levied. The NRB is currently £325,000 but there is also an additional NRB relating to your main residence (RNRB) that will be applicable to most, but not all, homeowners of a further £175,000, introduced on 6th April 2020. The current rate of Inheritance Tax is 40%.

There is no Inheritance Tax levied between spouses and assuming the first spouse left all of their assets to the surviving spouse, the surviving spouse can benefit from the deceased’s NRB. Essentially this means that on the death of the second spouse there can be twice the available NRB left to friends and family before Inheritance Tax is levied – currently this means a total of between £650,000 and £1,000,000.

If, for example, you are married and have a house worth £600,000 and additional savings and investments of a further £400,000 then on your death (assuming a total Nil Rate Band of £650,000) there will be £140,000 due in Inheritance Tax. If the full "Residence Nil Rate Band" was able to be claimed, this inheritance tax bill would reduce to £0.

There are a number of ways to plan for Inheritance Tax such as gifting, the use of Trusts or Pensions, or the purchasing of life insurance. Due to the vast number of options and circumstances that could apply, if you are concerned about the tax your friends or family will have to pay on your death, please contact us to discuss this.