Are your executors going to face an Inheritance Tax bill on your death?
The Chancellor announced in his Autumn Statement last week that the allowances available to be offset against the value of an estate on death will remain at their current levels until 2028. This is likely to result in more estates becoming liable to inheritance tax due to soaring house prices and inflation and may find that many more people are caught in the trap following the death of a loved one.
The current inheritance nil rate band allowance is £325,000. If you are married and you leave everything to your spouse on your death then your own allowance remains unused (because gifts between spouses are exempt for inheritance tax purposes). This unused allowance can be ‘carried forward’ and added together with the allowance of the second spouse to die resulting in a total allowance available of £650,000.
In addition to the above, providing that the estate passes down to children/grandchildren/greatgrandchildren and the deceased has owned a property at some point prior to their death, there is a Property Nil Rate Band Allowance available of £175,000 per person – doubled up this results in a total property allowance of £350,000. However, the property itself must be or have been worth £350,000 plus to qualify for this allowance at its full rate. If the property was worth, say, £250,000, then the allowance would be capped at that value. This additional property allowance is also available to step children of the deceased. If the estate is worth more than £2m then the property allowances tapers away.
If an estate qualifies for all the allowances, the total available would be £1m with any value above this sum being taxed at 40%.
There are ways to mitigate any such liability such as making annual gifts of £3,000 per year and making gifts out of excess income. Of course you can gift as much cash as you like to an individual (this is restricted to £325,000 if gifting into a trust) and, providing you survive seven years from the date of the gift, the value of it will fall out of your estate for inheritance tax purposes.
If you have any concerns about the impact that inheritance tax may have on your estate please call us for more information which we can tailor to your individual circumstances.
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