February 17, 2020

What is Inheritance Tax? (IHT)

In this world, nothing can be said to be as certain, than death and taxes – so said former President of the United States of America, Benjamin Franklin. It would be hard to argue against this statement but there are steps you can take to limit the effect of the latter – if not the former.

 

According to research, the average person pays around £825,000 in tax over the course of a lifetime (2016). Few people want to pay more tax when they die. However, when you die Inheritance Tax has to be paid at 40% on any value over a certain amount. Currently the rate over which IHT at 40% is payable is set at £325,000 (called the nil rate band). So, if you are worth £425,000 at death, 40% of £100,000 is payable, or £40,000.

However, as you might expect in the taxation system, things are not normally that simple.

Certain exemptions and reliefs are also available. These won’t normally apply automatically, and certain conditions have to be met for them to be utilised. Therefore, professional advice should be sought in order that the maximum amount of IHT can be saved.

Transfers between spouses and civil partners are fully exempt from IHT whether these transfers are made in life or upon death so that no IHT is payable irrespective of the value. Therefore, for married couples and civil partners the challenge is how the maximum value can be passed down to the next generation with the minimum of IHT being paid.

Charitable gifting during life and upon death is also fully exempt. In addition, if you give 10% or more of your estate to charity, the tax rate payable on the remainder of your estate, above the Nil rate band, is 36% instead of 40%.

Since 2018 it has also been possible to apply for a further exempt allowance in relation to the value of your main property. The Residential Nil rate band (RNRB) applies to properties passing to direct descendants. From April 2020 each person receives £175,000 in RNRB. Your Will needs to be carefully written to ensure the new exemption applies and your estate needs to be managed with equal care after you pass away.

There are additional reliefs in relation to certain types of assets that you might own when you die. Business Property Relief (BPR) and Agricultural Property Relief (APR) can see qualifying assets receive either 50% or 100% relief. Again, the Will needs to be carefully crafted. Advice from a Financial advisor and/or accountant may also be necessary to maximise benefits.

Limiting what tax you pay upon death is an important area for many and one that starts with a conversation with an expert. Fortis Law will learn more about your circumstances before providing all available options.

Fortis Law Shortlisted
..... ..... .....
..... ..... .....
...... ......
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram