How is Inheritance Tax calculated?
Currently, IHT is charged at 40% on the net value of relevant assets which are passed on to your beneficiaries after death.
You may be able to leave up to £325,000 in cash or assets tax-free and receive an additional £175,000 allowance on your home if you are leaving it to a direct lineal descendant (and your total estate is less than £2,000,000).
What is the current Inheritance Tax threshold?
The IHT Nil Rate Band has been fixed at £325,000 since 2009 and was again frozen in 2022 until 2028.
What is the Nil Rate Band (NRB)?
The Nil Rate Band (NRB) is the limit at which you should not have to pay IHT on your estate. The NRB is currently £325,000 per person or £650,000 for a married couple. In certain circumstances, this can be increased to £1,000,000 per couple where their home passes to a direct lineal descendent (the Residence Nil Rate Band (“RNRB”)).
Each person's estate can benefit from the NRB. A RNRB may be available in addition to the NRB.
When is my Inheritance Tax to be paid?
IHT must be paid within six months of death. If it is not paid within six months, HMRC will start to charge interest.
How is my Inheritance Tax liability paid?
An IHT bill can be paid by post or online.
Will my pension be impacted by Inheritance Tax if I die?
Pensions are usually exempt from IHT, however there are instances where this is not the case. Whilst usually free from IHT, pensions can be subject to Income Tax if death is after age 75, so it is important to seek advice when thinking about how to pass on your estate in a tax efficient manner.
IHT myth-busting
The UK tax regime has several complex rules which impact you as a high-net-worth individual. With complexity comes confusion and misinterpretation which in turn, could mean you pay more tax than you need to, particularly in the case of Inheritance Tax (IHT). Below we debunk some of the myths surrounding IHT and planning opportunities to help protect your wealth for future generations.
Can I gift all my net excess income IHT-free?
My approximate net recorded income is £90,000 per tax year and my recorded expenditure is approximately £70,000 per tax year. Am I able to gift the entire £20,000 difference annually, without incurring inheritance tax on any of the £20,000?
Inheriting a Pension – changes to death benefits
Pension funds have, for some time, been used as a tax-efficient way to pass wealth to future generations as they, in almost all instances, sit outside of an individual's estate. Pensions are therefore not part of Inheritance Tax (IHT) calculations and are not subject to the punitive 40% IHT rate.
Key contacts
Zoe Davies Partner - Private Client London
IHT myth-busting
The UK tax regime has several complex rules which impact you as a high-net-worth individual. With complexity comes confusion and misinterpretation which in turn, could mean you pay more tax than you need to, particularly in the case of Inheritance Tax (IHT). Below we debunk some of the myths surrounding IHT and planning opportunities to help protect your wealth for future generations.
IHT planning for LGBTQ+ couples
While personal and family circumstances will differ for each couple, tax rules are the same for both LGBTQ+ and non-LGBTQ+ couples.
IHT planning for married and civil couples
Inheritance Tax (IHT) was once regarded as a tax that only affected the very wealthy. However, rising property prices and a freeze on allowances mean many more people are facing a tax charge upon death. Everyone’s circumstances are different and it is important that (even those who might not consider themselves particularly wealthy) get proper tax and financial planning advice.
Inheritance Tax Planning - Top tips
Inheritance Tax (IHT) planning isn’t something that can be looked at once and ticked off the list. As the value of your assets change, so must your plans.
It's good to gift, but be aware of the tax traps
Gifting can be a great way of passing on wealth to your loved ones as well as reducing the value of your estate for Inheritance Tax (IHT) purposes and general estate planning.
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