Will inheritance tax have to be paid on my estate?
Whether an estate is liable to a charge to inheritance tax depends on the value of the estate itself and which allowances, reliefs and exemptions are available to be set against it.
We each have a nil rate band allowance which is currently £325,000. If you were married or in a civil partnership and your spouse or civil partner has pre-deceased you, if they left some or all of their estate to you then you will also be able to benefit from the transferable nil rate band allowance. This is because anything left to a spouse or civil partner (and to charity) is exempt from inheritance tax, meaning that up to a further £325,000 is available on a second death, increasing the overall nil rate band allowance to £650,000.
There is also now the possibility of qualifying for a further allowance by virtue of the residence nil rate band. Generally speaking, if you leave an interest in a residence to direct lineal descendants, such as children, then you will qualify for this additional allowance, currently worth up to £150,000 and increasing up to £175,000 in the next tax year.
Just like with the nil rate band, the residence nil rate band allowance can also be transferred between spouses and civil partners. This means that up to a total of £1m worth of allowances will be available to the survivor of a married couple or a civil partnership within the next few years.
There is also the possibility of some of your assets qualifying for business property relief or agricultural property relief. Various criteria apply to each but assets qualifying for the same can be relieved of the charge to inheritance tax at either 50% or 100% depending on the facts.
The value of your estate in excess of the allowances and not qualifying for a relief is currently taxed at the rate of 40%.
You should also note that lifetime gifts can use up your nil rate band allowance. Various exemptions apply but if you make a gift and then pass away within 7 years of the same, inheritance tax may be due on such gifts when you pass away.
If you would to receive bespoke tax planning advice tailored to your specific circumstances, please contact a member of our Tax and Estate Planning department.