Inheritance Tax (IHT) is a tax that is charged on the value of the assets that you own at the date of your death. There is usually no IHT to pay on assets passing between husband and wife or to charity and, if the total value of your estate falls below the current tax-free threshold (known as the Nil Rate Band) of £325,000. If you own property as part of your estate and leave it to your children (including adopted, foster and stepchildren) or grandchildren, then your tax-free threshold can increase by an additional £175,000 (known as the Residence Nil Rate Band).
The standard rate at which IHT is charged is 40%. This will only apply to the part of your estate that exceeds the tax-free thresholds mentioned above. If you leave at least 10% of the net value of your estate to charity, then the standard rate of IHT can be reduced to 36%.
Married couples and civil partners may be able to pass on their unused tax-free IHT allowances, when the first partner dies, to the survivor, which can potentially double the tax-free allowances available, on the second death, up to £1,000,000. Other IHT reliefs include reduced IHT on business assets and agricultural assets. Death benefits payable under most pension schemes are usually exempt from IHT, but specialist planning may be required, if your pension scheme is substantial, to avoid any unexpected IHT bills after your death. To value an estate, you need to work out the value of all assets as of the date of death and deduct any debts and liabilities. Assets can include property, cash, investments, insurance policies, jointly owned assets and potentially gifts that may have been made during your lifetime. With advanced planning and effective advice, you can take steps to reduce how much IHT will be paid on your death by, for example:
- Leaving a legacy to charity in your Will
- Gifting property or cash during lifetime and surviving 7 years from the date the gift is made
- Leaving your estate to your spouse or civil partner
- Paying into a pension rather than a savings account
- Regularly gifting up to £3,000 per tax year, and
- Making gifts out of surplus income, provided that you are doing this regularly and are able to maintain your usual standard of living. Please note that the rules are complex and it is important that you keep very good records to avoid a challenge by HMRC
If IHT is payable on your estate on death, it must usually be paid within 6 months of the end of the month of death, otherwise, HMRC will start to charge interest on the outstanding sum due and, the tax is not paid within a year of the date of death, then HMRC may also apply penalties. If there is a Will, it is usually the Executor who will arrange the payment of IHT. If there is no Will, it is then the Administrator of the estate who will arrange this. Problems may arise where there is insufficient cash in the estate to pay the IHT that is due (for example, if the main asset is a house). It is also possible to make an election to pay the IHT that is due in respect of 'real' property, for example, over a period of 10 yearly instalments, if required.
The best IHT planning tends to be undertaken in good time and with a long-term view. The team at Clifton Ingram LLP is one of the most qualified and experienced in the area, with a reputation for delivering considered and practical advice. Our team includes members of the Society of Trust and Estate Practitioners (STEP) and we can help you plan and structure your estate to help you control your tax liabilities for the future benefit of your loved ones.
Contact our Inheritance Tax solicitors in Farnham, Reading and Wokingham
Our experienced solicitors for Inheritance Tax work from offices in Farnham, Reading and Wokingham. We provide help with Power of Attorneys for clients from all over Berkshire, as well as Oxfordshire, Buckinghamshire, Surrey and further afield.
Speak to one of our legal Inheritance Tax solicitors today by calling 0808 164 1510 or using the contact form to the right of the page and we will respond quickly.