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The Ins and Outs of Inheritance Tax

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3 November 2021

The Ins and Outs of Inheritance Tax

 

Inheritance Tax Planning (IHT) is something that many people assume is complex, and as such it’s often left until the last minute. In practice however, this often means that action is taken too late to make a difference, and we recommend planning for IHT much earlier in life. If you follow the correct advice, at the right time, you may be able to keep any IHT bill to a minimum.

 

So, what is IHT?

 

IHT is the tax which your estate may be liable for if its’ value is above a certain amount. Everyone has a tax-free allowance and is entitled to pass on £325,000 without paying IHT. This is known as the ‘Nil Rate Band’. Everything above that threshold is usually taxed at a rate of 40%.

 

Married couples and civil partners can share their allowance and transfer any unused allowance to their spouse/partner on death. This means that in practice your joint Nil Rate Band is £650,000.

 

How and when is IHT paid?

 

The named Executor in your Will is responsible for arranging the payment of your Estate’s IHT liability to HM Revenue & Customs. In the absence of a Will, this responsibility passes to your Administrator.

 

HMRC requires IHT liability to be settled within 6 months from the date of death. The payment is usually made from funds within the estate or from the funds raised by selling assets within the estate.

 

How can I plan to minimise IHT tax?


There are a number of ways in which the size of your taxable estate can be reduced, including but not limited to; Trusts, Charitable Giving, Lifetime Gifts and making use of Pensions

 

What about the Family Home?

 

In April 2017 an extra IHT allowance was introduced known at the ‘Residential Nil Rate Band’ (RNRB). This can apply in certain circumstances when the primary residence (the main home, usually the family home) is passed to direct/lineal descendants. If you are eligible for the RNRB allowance, the maximum is now up to £175,000 per person and like the NRB allowance, any unused allowance can be transferred to a surviving spouse/civil partner if applicable. This means that married couples/civil partners have a potential tax-free allowance of up to £1 million.

 

At JWP, we have a team of solicitors who specialise in this area of the law. We can help you with:

 

-          Minimising IHT Bills

-          Understanding and Planning for IHT

-          Reducing the size of your taxable estate

-          Making or reviewing a will

 

Before you consider any other form of IHT planning, it is essential that you have an up to date Will. Making a Will is one of the most important things that you can do to ensure that your estate goes to who you want it to, and trustworthy Executors are appointed. If you already have a will, It may need to be reviewed to ensure your estate benefits from the Residential Nil Rate Band and other matters pertaining to IHT. In any case, we recommend reviewing your will every 5 years.

 

We offer a free first meeting to understand the details of your case and discuss potential next steps. Before progressing with your case we will always provide a clear view of costs and choices. In many cases, we’re able to offer a fixed price for our services so you know you won’t pay more.

 

If you’d like to book your free first meeting, get in touch today on 01924 387 171

Joanna Longfellow