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Inheritance Tax (IHT)

There are two nil-rate bands (NRB) within Inheritance Tax (IHT). Subject to available reliefs and exemptions, tax is payable to the extent the net value of the estate exceeds these nil-rate bands. The current rate of tax is 40%

The £325,000 NRB is available to all individuals and can be set against all asset types on their death. The NRB can also be used both:

  • to allow individuals to make lifetime chargeable transfers up to £325,000 within a 7-year period without an IHT liability
  • in calculating the periodic and exit charges on relevant property trusts

The £175,000 RNRB (Residence Nil Rate Band) is available to those passing on a qualifying residence on death to their direct descendants. A taper reduces the amount of the RNRB by £1 for every £2 that the net value of the estate is more than £2 million.

Any unused NRB or RNRB following the death of an individual can be transferred to their surviving spouse or civil partner. This means that since 6 April 2020, qualifying estates have been able to pass on up to £500,000 and if the NRB and RNRB remain unused, the qualifying estate of a surviving spouse or civil partner is still able to pass on up to £1 million without an IHT liability.

If there is an estate which is larger in value that the current threshold amount of £325,00 (the Nil rate band) There will have to be paid Inheritance Tax (IHT).

Some Ways to mitigate Inheritance tax (IHT):

  • Nominees of life insurance policies, bonds, death in service benefits (DISB) or death benefit are not subjected to tax as they are not treated as being the a part of the assets of the deceased.
  • Creation of family Trusts where life insurance policies , death in service benefits and pensions can be nominated into a Trust outside of Testators estate. These Trusts can have powers to allow the use of income by a beneficiary (surviving spouse) to spend or invest and receive loans. On the death of the surviving spouse IHT will need to be paid however it is possible that as the beneficiary owes a debt to the Trust the capital used from the trust does not therefore attract IHT thus reducing the inheritance tax owed.
  • The use of Trusts in Wills may allow you and the beneficiary to save tax.
  • Giving gifts of land money or property 7 years before you die.