Inheritance tax (IHT) planning is often overlooked by people in the UK. Unfortunately, there are two certainties in life, death and taxes. Inheritance tax rolls these two certainties together, to give taxes on death.
The good news is that with proper planning inheritance tax can potentially be reduced or even avoided altogether. This planning is often referred to as inheritance tax planning, IHT planning or estate planning. It does not really matter what you call the planning, the most important thing is to take independent advice and plan sensibly.
The amount of tax you will pay depends on the value of your estate and gifts made from your estate prior to death. Your estate is made up of everything you own minus any debts such as mortgages, loans and your funeral expenses.
You are entitled to an inheritance tax nil rate band, which is £325,000 in tax year 2020/21.
There is also an additional residential nil rate band, if your family home passes to your children and/or grandchildren, which is £175,000 in tax year 2020/21.
Any part of your estate which cannot be covered by your nil rate band or residential nil rate band will generally be taxed at 40%.
An extra rule applies to married couples and civil partners. The transferable nil rate band means (on death of the second spouse or partner) the surviving spouse or partner can normally use any of their partner’s unused nil rate band and residential nil rate band.
There are also numerous rules around gifts made prior to death.
It is crucial to take expert advice on inheritance tax planning, as the rules are complicated and the consequences of doing the wrong thing can be catastrophic.
Why not contact us for more details and find out how our expert advice could help you reduce your inheritance tax bill on death. We offer a free initial consultation on a no obligation basis.
All information is based on Farrell Financial Planning’s understanding of UK law & HMRC practice in the UK. Tax and legislation are subject to change.