Inheritance tax, or IHT as it is commonly known, is generally payable on everything that is of value in your estate when you die (after your IHT threshold and subject to some exemptions). This can include:
• Your home
• Any savings and investments
• Other properties or land that you own – even if they are overseas
• Cars and other assets
Usually, it is payable on death. But in certain circumstances IHT can become payable earlier. Gifts during lifetime of up to £3,000 per annum will be IHT-exempt plus unlimited small donations of up to £250 to different people. Lifetime gifts above these amounts are potentially tax free if the donor survives 7 years but if they pass away before that IHT will be payable as part of the estate on death (albeit tax will be reduced the longer they have survived):
| |
0-3 |
3-4 |
4-5 |
5-6 |
6-7 |
| % of standard rate |
100 |
80 |
60 |
40 |
20 |
Currently, the Inheritance Tax threshold is £325,000. This means that anything over £325,000 will be taxed at 40% unless you plan to leave the entire estate to your spouse or civil partner. In this instance there will be no IHT payable and the whole threshold will be passed on to the surviving individual (it is also possible to pass on part of this threshold if some has been used on the death of the first person). There are also reliefs available for business and agricultural assets as well as a potentially increased IHT threshold if giving your home away to children or grandchildren.
It was announced by the Government that the threshold for Inheritance Tax will remain frozen at £325,000 until 2025/26:
| Taxable Estates & Gifts |
2021/22
|
2022/23 |
| Nil-rate Band |
£325,000 |
£325,000 |
| Residence nil-rate band* |
£175,000 |
£175,000 |
| Standard rate of tax |
40%† |
40% † |
| Rates for chargeable lifetime transfers |
20% |
20% |
- †36% where at least 10% of net estate is left to
charity.
The rules around Inheritance Tax are complex and can be quite hard to understand, potentially costing your loved ones many thousand pounds of additional, unnecessary tax if there has been inadequate planning. There are ways to ensure the correct amount of inheritance tax is minimised and in some cases eliminated entirely; to explore this it is worth speaking to one of our
Moore tax advisers.