Inheritance Tax - A Simple Guide

Inheritance Tax (IHT), no-one likes it, and more and more of us are paying it thanks to a freeze in the threshold that has lasted almost as long as the last ice age (cue wooly mammoth stage right*)!

In all seriousness, the nil rate band for inheritance tax hasn't gone up since 6 April 2009. The purpose of this blog isn't to tell you about the latest tax planning whizz (you have to pay me for that), but rather to outline the basics of inheritance tax to the uninitiated. If you're worried about IHT, then you should probably read on McDuff...

Inheritance tax is, as I'm sure you'll know, a tax on the estate of the deceased. So, technically it's not your problem! However, if you love your nearest and dearest more than the taxman, you won't want them to pay any more of it than is neccesary (note: I'm sure someone loves the taxman, if only it's his Mum). HM Revenue & Customs helpfully state:

        There’s normally no Inheritance Tax to pay if either:

• the value of your estate is below the £325,000 threshold
• you leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club

So, if that's you, job done, thanks for reading!

Oh, some of you are still here? Well, I suppose I better continue then...

Well, if your estate exceeds the £325,000 threshold (or nil rate band) then IHT is definitely a worry, but don't worry there's plenty that you can do about it:

• If you're lucky enough to own a house, then in addition to the IHT nil rate band (NRB) a residence nil rate band (RNRB) was introduced from 6 April 2017. This is available when residential property is left to direct descendants and currently gives up to a further £175,000 of tax free allowances.
• Married couples and civil partners are allowed to pass their estate to their spouse tax-free when they die. So, in effect, your surviving spouse can inherit your entire estate without having to pay IHT. You can also pass on your unused NRB and RNRB to your surviving spouse or civil partner.
• While you’re alive, you have a £3,000 ‘gift allowance’ each year. This is known as your annual exemption.This means you can give away assets or cash up to a total of £3,000 in a tax year without it being added to the value of your estate for IHT purposes.
• You can make gifts in excess of the £3,000 annual exemption, but they'll only be exempt if you live more than seven years from when you make the gift, otherwise your children or family might have to pay IHT on your gift when you die.

That's pretty much the basics of what you can do yourself, anything else is likely to require the assistance of a practitioner of the dark arts (a tax adviser, like me) to help you navigate the pitfalls of trusts, family investment companies and tax efficient investments. There are plenty of other blogs on here covering those subjects so please feel free to check them out, here are a couple of get you started:

• Trusts
• Family Investment Companies

I hope you've found this blog useful, and irreverently light hearted given the subject matter, and if you have any more questions I'd be more than happy to answer them, drop me a note via the contact form on the blog...

(*if the jovial tone of this blog seems a bit off kilter please accept my apologies, I've been reading Terry Pratchett again!)